In its Global Financial Stability Report (GFSR), released late Tuesday, it said financial institutions' losses continue to mount, and unless they receive sufficient capital infusions, the viability of some of them is uncertain.
“While roughly US$560 billion of the losses had already been realised through end-September 2008, bank share prices have continued to plummet and their revenue prospects have stalled.
“Raising new capital has become much harder, making it much more difficult for banks to repair their aching balance sheets,” it said.
The IMF said the most serious risk going forward is an intensifying adverse feedback loop between the financial system and the real economy— in which financial institutions' distress leads to impaired credit intermediation and slower economic growth, which in turn leads to further credit deterioration.
Financing Problem Hits Air Asia?
THE major shareholders of AirAsia, South-east Asia's largest budget carrier, are mulling over taking the company private, a development that could be announced as early as this week. The speed of the exercise may have been catalysed by a speculative story over the decision in the Edge newspaper over the weekend.
Indeed, executives familiar with the exercise said that the situation was fluid: The rapidly increasing share price of the company could render the financing of the deal unviable.
'I suspect that if it rises beyond RM1.40 to RM1.50, then it could be no go,' one of the executives told BT. AirAsia shares closed slightly up at RM1.25 yesterday, but massively above its lows of below RM0.80 two months ago.
The executives said that privatising the airline began to be seriously considered after AirAsia shares began dropping below RM1 three months ago, in part because of massive sell-offs by international fund managers such as T Rowe Price, spooked by the increasing prices of crude oil amid intensifying competition in the airline industry.
But news of the exercise began to leak out after supporting documents were lodged with Bursa Malaysia and the Securities Commission on Sept 29.
In fairness, however, the airline's shares started rebounding after oil prices began going off their highs in September.
The exercise reflects the frustration of the airline's major shareholders who consider their business completely undervalued by investors more interested in short-term horizons than long-term viabilities.
If AirAsia's privatisation goes through, however, it will also represent another blow to the Kuala Lumpur stock exchange which has increasingly seen quality stocks such as Maxis Telecommunications and PPB Oil Palms delisted from the exchange over similar frustrations by their major shareholders.
AirAsia's 31 per cent major shareholder is Tune Air, which is majority-controlled by its founder-entrepreneur Tony Fernandes.
Another 15 per cent or so is held by the Employees Provident Fund, Malaysia's largest private pension plan, and Nomad, a hedge fund that operates out of the Caymans and which began buying the stock when it fell under RM1 earlier this year.
At RM1.50 a share, the airline is valued at around RM3.6 billion (S$1.51 billion) which, according to the executives, should be fundable.
'There is no doubt it's undervalued,' said one of the executives. 'Its option to purchase 125 new aircraft between now and 2012 at a huge bulk discount alone is a huge asset at a time of increasing aeroplane cost. And don't forget that oil prices are drifting downwards.'
In response to questions from AFP, a spokesman for AirAsia told the agency that the airline was 'considering various options'.
More reports of Air Asia Asia Delisting ....AIRASIA Bhd's major shareholder Tune Air Sdn Bhd said it may take the airline private at an indicative price of RM1.35 per share.
Tune Air told Bursa Malaysia in reply to a query yesterday that it is one of the options the company is developing to optimise and expand the operations of the airline.
The company, however, said that the price is subject to change, depending on the market conditions at the point of decision.
"It must be emphasised that this option is subject to the availability of financing on acceptable terms from financial institutions and other potential investors in these challenging times, as well as conducive market and industry conditions," Tune Air told Bursa Malaysia.
The announcement did not list out any of the airline's other options.
AirAsia bosses Datuk Seri Tony Fernandes and Datuk Kamaruddin Meranun have been dodging questions on the privatisation of AirAsia since news of it first broke.
At a ceremony to mark the retirement of the budget carrier's final Boeing 737-300 aircraft on its Malaysian operations, Fernandes said he is optimistic of the airline's prospects despite a worsening global economy. He said the worst has not hit yet and is in fact just starting.
"I predict a recession, which will happen in two years or so. The world's financial system needs a good cleaning ... economies are driven on real value, no make-believe value is going to last for long," Fernandes said in Sepang yesterday.
He maintained though that AirAsia is in a position to capitalise on the situation.
Meanwhile, Fernandes hinted of re- tiring soon as he reminisced about the airline's beginnings in a speech to his staff yesterday.
When questioned on it, he backtracked, saying that he was only referring to the fact that he will have to retire one day.
"Malaysia Airlines can't celebrate yet ... what I am trying to say is, when I go you will not see me sticking around as a consultant or anything like that," Fernandes said.
He also said he wants to close the Subang chapter, saying that the airline has outgrown Subang Airport. AirAsia had lobbied for the use of Subang but the government did not relent as it wanted to make KL International Airport a regional aviation hub.
More Reports on Air Asia DelistingANALYSTS are taking a mixed view on whether budget carrier AirAsia Bhd will stand a better chance of securing financing if it were delisted from the stock market.
A business weekly reported on Saturday, citing unnamed sources, that AirAsia is considering delisting itself due to a sharp drop in its value. It has lost 23.13 per cent of its market value since the beginning of the year.
Kenanga Research Sdn Bhd said it would be easier for AirAsia to get financing if it remains a public listed entity.
"By staying as a listed entity, AirAsia would have better access to capital markets for financing of its aggressive fleet expansion programme," it wrote in a note yesterday.
The carrier will take delivery of 17 A320s next year and another 23 in 2010.
Kenanga Research estimates that it will cost AirAsia some RM2 billion to buy back the public's shares, based on its last closing price of RM1.23 per share.
OSK Research Sdn Bhd acting research head Chris Eng said the carrier may have to dig at least RM2.19 billion to take itself private, if major shareholders Tune Air Sdn Bhd and the Employees Provident Fund (EPF) work in concert, and a privatisation price of RM1.50 is offered.
"We believe that the privatisation could indeed be successful if investors can be found to take up stakes in the carrier should the exercise proceed," he said.
He said by securing investors, the carrier's major shareholders would not have a problem in getting short-term bridging loans to fund the privatisation.
"As to whom these investors may be, we believe EPF could be willing to increase its stake in AirAsia while financial institutions that have provided funding for airlines would also be possibilities," said Eng.
Meanwhile, an analyst from a local brokerage said taking the carrier private may be a good move given the increasing difficulty in raising money on the capital markets.
"By going private, AirAsia would be free to place out its shares to holders who are willing to wait for long term gain," he said, citing the delisting of Maxis Communications Bhd.
Major shareholder Binariang GSM Sdn Bhd had managed to secure a foreign buyer to pay US$3.05 billion (RM10.6 billion) for a 25 per cent stake in Maxis a month after successfully taking it private in June 2007.
For Standard & Poor's Equity Research aviation analyst Shukor Yusof, he believes that AirAsia is right to consider privatisation in the current global economic situation and high cost of borrowing.
"AirAsia would not be the only one thinking along these lines. Several airlines in the US have thought of delisting as well, to salvage their companies," he told Business Times yesterday.
Shukor said because of the credit crunch, irrespective of whether an airline is listed or not, the question will be how much an airline is willing to pay for the financing.
"AirAsia got listed as an avenue to provide for financing for its expansion plans ... now that the market is not delivering, looking at exiting the market will save the carrier a lot of hassle and money," Shukor said.
AirAsia's shares rose 1.62 per cent yesterday, to close at RM1.25 per share.
