AirAsia plans up to US$600 million bond to cut borrowing cost: sources

The Malaysian budget carrier operator is targeting a coupon rate of below 10% for the proposed note

AirAsia Aviation Group plans to raise as much as US$600 million, replacing a private credit facility with a lower-interest bearing bond, according to people familiar with the matter.

The Malaysian budget carrier operator is targeting a coupon rate of below 10 per cent for the proposed note, said the people, who requested anonymity discussing private matters. AirAsia is taking advantage of the improved travel numbers to get cheaper refinancing, they added.

The budget carrier’s bond plan is the latest sign of the cost pressure faced by borrowers in the once-booming US$1.7 trillion private credit market, where fundraising has slowed as Federal Reserve’s interest rate cuts cheapened debt financing in public markets.

The company received a US$443 million dual-tranche private financing last year to use partly for refurbishing planes grounded during the pandemic, with borrowing costs as high as 11 per cent.

AirAsia continues to explore various financing initiatives, including potential options in the public bond markets, and will make further announcements in due course should there be any material developments, deputy chief executive officer Farouk Kamal said in an emailed response to Bloomberg’s request for comment.

AirAsia is holding non-deal investor meetings in Hong Kong on Nov 18, and in Singapore on Nov 21, Kamal said in the email.

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“Our strong earnings performance despite a challenging environment has generated significant investor interest and demand,” he wrote.

Deutsche Bank is the sole arranger for the proposed bond, said the people familiar with the matter. The bank declined to comment.

As part of the borrowing facility AirAsia secured last year, private credit funds Ares Management and Indies Capital Partners provided a US$200 million tranche while aircraft lessors supplied the other US$243 million portion.

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The private credit tranche of the securitized deal pays a coupon of 11 per cent per annum and has a four-year tenor. The lessor piece offers 7 per cent per year and carries a two-year maturity.

AirAsia’s funding needs also have come as it is seeking a RM6.8 billion (S$2.1 billion) restructuring to create a new, listed entity that will simplify its operations by combining its various airline units. BLOOMBERG