Does it look right when an investment arm of a bank keeps pumping money to shore up or stabilise the share price of a company on the stock market? Well, it doesn’t to me though some people might reason that the company has potential and is most likely to be profitable in the near future.
For an individual investor looking for returns on equities invested in, you would think twice before you keep pumping in your hard-earned money into a stock which is slipping. Unfortunately not for a major bank, a government-linked company (GLC) outfit which apparently acts as a stabilising manager for the stock.
Maybank has, for the second time this month (July 2013) bought a total of 15.49 million shares of AirAsiaX , a low-cost long haul airlines which was listed on 10 July with a lacklustre debut on Bursa Malaysia (Kuala Lumpur stock Exchange).
The initial public offering (IPO) was at 1.25 and on Thursday (26 July 2013) its price was 1.21 , 2.42% below the IPO price (Source: Businesstimes) and would have declined further had it not been for the heroic rescue.
As everyone knows, AirAsiaX belongs to the flamboyant Tony Fernandes . One might ask why the need to list this LCC airline since the parent company AirAsia is already listed on the market. Both business models are low cost carrier: the only different is the latter is short haul (flying to destinations of less than four hours) and the former is long haul ( presently within six hours).
The reason is glaring as anyone who knows about the purpose of an IPO: raising money from public investors (other peoples’ money) to fund the business. Whoever thinks that this company would perform and give them good returns, will purchase the stock. I think under the current economic climate, it is rather risky to invest in an airline stock: fuel price volatility, terrorism and virulent virus such as MERS Cov , all prove to be headwinds in the air travel business.
The money raised through the listing is supposed to fund the company’s ambitious expansion programme with more aircrafts being purchased. Its high gearing is not attractive to investors out to make a fast capital gain on their investment.
It’s a shrewd move by Tony to list AirAsiaX so that he doesn’t have to utilise existing AirAsia’s capital to operate the long haul airline, which could affect the returns to its current shareholders (many are believed to be foreign fund managers).
One just wonders who are its cornerstones investors beside Maybank . I hope PNB (Permodalan Nasional Berhad), EPF (Employees Provident Fund) and Tabung Haji (Pilgrimage Fund) will not be among them. Not only does it face a stiff competition in the industry but its services will not be unlike AirAsia: low class.
I give this stock a wide berth (a big X) because I have stopped admiring Tony Fernandes’s ways of doing business and unashamedly enriching himself and political cronies at the expense of Malaysia Airlines: sly entrepreneurship.
Will Maybank keep on buying AirAsia X shares? By the way, whose money is it in the bank?