AirAsia's Chief Executive Officer Tony Fernandes speaks during a media conference near Changi Airport in Singapore July 9, 2015. Reuters/Edgar Su

AirAsia (AIRA.KL), the largest budget airline in Asia will be setting up a US$1-billion (AU$1.42 billion) financing plan through a multicurrency medium-term note to shore up its sagging financial position. Under the program, the airline’s AirAsia Global Notes Ltd will issue bonds in US dollars and other currencies.

AirAsia has obtained the in-principle approval from Bursa Malaysia to list the programme and has sought similar approval from the Hong Kong Stock Exchange.

The airline revealed the plans in a filing made to Bursa Malaysia and said the funds would be used for bolstering working capital and in debt refinancing. It will also use a portion of it for buying new aircraft.

The funding plan was reportedly finalised after AirAsia shareholders evaluated “all strategic options” amidst reports that the airline's chief executive has been pressing investors to make it private.

The notes will be sold outside the US, according to AirAsia, which and cited the US securities regulations in that regard. The multi-currency medium-term note program will refinance debt and allow buying of airplanes.

According to Reuters, Barclays will be the sole arranger of the funding program, for which it is also the joint dealer with CIMB and RHB Investment Bank. AirAsia has urged the banks to arrange meetings with investors in Singapore, Hong Kong and London in the coming weeks, added the website.

Plunging shares

The airline has been facing some hard financial weather in 2015 after its shares plunged 45 percent following a June 10 report by GMT Research that questioned its accounting methods. It was further worsened by ringgit’s depreciation and mounting competition. The December 2014 plane crash at its Indonesian affiliate also caused a net loss of 405.7 million ringgit (AU$131 million) in the quarter through September.

According to analysts, the refinancing program will not affect its net gearing significantly. Tan Kam Meng, an analyst at TA Securities said the issuance of dollar and multi-currency MTN can deal with the US dollar debts and help in purchasing of aircraft in dollars, reports Asia Nikkei. Until September 30, 2015, AirAsia's borrowings were 13.7 billion ringgit (AU$4.3 billion).

Emerging demand

The financing program is vital for AirAsia, as it faces the challenge of retaining its 80 percent market share in Malaysia and is keen to increase the capacity to address the expanding traffic. But the airline was not able to add any plane in 2015. The expected air travel demand recovery in 2016 on the back of Malaysian government’s hard marketing to meet the target of 30.5 million tourist arrivals will be an opportunity for the budget airliner. AirAsia has a heavy focus on Southeast Asia, which is home to 600 million population with a vast middle class and first-time fliers.