Debt restructuring thins Khazanah’s Malaysia Airlines stake

Khazanah Nasional, Malaysia’s sovereign wealth fund, has said that its equity in Malaysia Airlines (MH, Kuala Lumpur Int’l) had been diluted due to the debt-to-equity conversions that have been part of the troubled flag carrier’s debt restructuring scheme, Shahril Ridza Ridzuan, the fund’s managing director, confirmed on March 4. The conversions, which an unspecified number of creditors took up, resulted in a “minor dilution” to its shareholding but the fund remains the largest shareholder. They “add more value to the existing equity holders by taking out liability from the balance sheet,” the managing director said, as quoted by Reuters, during a virtual news conference marking the release of the fund’s 2020 annual report. Asked about the likelihood of bringing new investors to the airline, Shahril said that this would probably have to wait until a recovery in the sector. “The only deals that are being done are either fire sales or insolvency proceedings […] We don’t expect that really until 2023, maybe 2022 at the earliest,” he said. As previously reported, last month the High Court of Justice in London sanctioned a restructuring plan at Malaysia Airlines parent Malaysia Aviation Group, in which the fund has committed MYR3.6 billion ringgit (USD890 million) in new capital to the group to carry it through to 2025. The injection is designed “to give certainty to the plan” to persuade creditors to provide discounts and take part in the debt conversions, Shahril commented. In a statement on its annual report released on March 4, Khazanah Nasional said that the court ruling “represents an important component of the wider restructuring exercise, which will achieve a reduction in Malaysia Aviation Group’s liabilities of over MYR15 billion [USD3.68 billion].” However, it added that Khazanah has “had to impair several assets, namely MYR3.1 billion” (USD761 million) for the Malaysia Airlines parent to account for the effects of the Covid-19 pandemic on travel and tourism. Khazanah Nasional’s overall operating profit dropped from a record MYR7.4 billion (USD1.82 billion) in 2019 to MYR2.9 billion (USD712 million) in 2020 as the pandemic resulted in these and other impairments. It predicted that 2021 will continue to be challenging, as aviation and tourism are not expected to recover until 2023.