Following two disasters earlier this year, Malaysia Airlines stock (KLSE: MAS) will be delisted from the Bursa Malaysia after sovereign wealth fund Khazanah Nasional Bhd. made an offer to buy out minority shareholders in the carrier.

Khazanah released a statement saying that it will pay 27 sen (US$0.08)  a share for a total of 1.38 billion Malaysian Ringgit (US$429 million) to buy the 30.6% of Malaysia Airlines that it does not own. The airline will need “substantial funding requirements” for the next several years to sustain their operations.

“By privatizing it first, it makes the restructuring easier. If you leave it as a public-listed company, there’s a lot more regulatory requirements that you have to adhere to.” said Jason Chong, chief investment officer at Manulife Asset Management Services Bhd. in Kuala Lumpur.

Previous options for a revival plan included Khazanah taking the company private, or declaring bankruptcy. Both routes would require a delisting. Hugh Dunleavy, the director of commercial operations at Malaysia Airlines, ruled out bankruptcy in May.

“The proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier on all relevant aspects,” said Khzanah. “Nothing less will be required in order to revive our national airline to be profitable as a commercial entity.”

 

Can Malaysia Airlines Stock Recover?

The company is struggling with repairing its reputation and limiting losses after July’s downing of Flight 17 over Ukraine compounded problems after the disappearance of Flight 370. The first incident put the company under worldwide media scrutiny, severely harming its image and prompting boycotts in China. Malaysia Airlines stock crashed following both incidents.

Even before March’s disappearance, Malaysia Airlines had accumulated 4.13 billion ringgit (USD$1.29 billion) in losses during the past three years. The carrier missed its target of being profitable in 2013 as rising fuel prices, maintenance costs, financing charges and an unfavorable exchange rate wiped out an increase in revenue.  Shares of the company have plummeted by 23% this year.

But Malaysia’s faltering airline industry is just one of several problems the country must face. A depreciating currency combined with low oil prices have hit the Malaysian economy hard.

About Ashoke Gupta

Ashoke is an expert in international trade and has worked in over 10 countries during his life, from Panama to Japan. He currently lives in his hometown of Mumbai and is an expert on West Asian markets.
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