(Bloomberg) -- AirAsia Group Bhd.

shares slumped nearly 18% following a trading suspension that

came as auditor Ernst & Young said the carrier's ability to continue as a going concern may be in
"significant doubt."
In a statement to the Kuala Lumpur stock exchange, Ernst & Young said AirAsia's current liabilities
already exceeded its current assets by 1.84 billion ringgit ($430 million) at the end of 2019, a year
when it posted a 283 million ringgit net loss. That was before the coronavirus crisis, which has further
hit the carrier's financial performance and cash flow.
Trading was halted Wednesday until 2:30 p.m.
The slump in air travel and poor financial performance "indicate existence of material uncertainties
that may cast significant doubt on the Group's and the Company's ability to continue as a going
concern," Ernst & Young said in its unqualified audit opinion statement.
Covid-19 plunged the aviation industry globally into crisis as border controls and health concerns
vaporized demand for air travel. AirAsia on Monday reported a record quarterly loss of 803.8 million
ringgit. It wasn't until late March and the end of the quarter that the budget airline suspended flights.
"This is by far the biggest challenge we have faced since we began in 2001," AirAsia's Chief
Executive Officer Tony Fernandes said in a statement Monday.
He said the carrier is in talks for joint-ventures and collaborations that may result in additional
investment, and it has also applied for bank loans and is weighing proposals to raise capital.
A person with knowledge of the matter said Wednesday the airline is considering raising about 1
billion ringgit through a rights issue. It is also weighing stake sales in its digital and cargo units, the
person said, asking not to be identified as the information is private.
AirAsia Is Said to Weigh Rights Issue, Unit Sales Amid Slump
Last month, South Korean conglomerate SK Group said it was reviewing a proposal to buy a small
stake in the airline. In May, AirAsia sent a memo to Malaysian banks seeking to borrow 1 billion
ringgit, people familiar with the matter said at the time.
AirAsia said in an exchange filing Wednesday that Ernst & Young's statement and a decline in
shareholder equity triggered the criteria for a so-called Practice Note 17, which applies to financially
distressed companies. However, the airline won't be classified as PN17 as the Malaysian exchange
suspended application of the status from April through June next year as part of relief measures in
light of the coronavirus pandemic.
AirAsia needs at least 2 billion ringgit this year to stay afloat, according to K. Ajith, an aviation analyst
at UOB Kay Hian Pte in Singapore.
"There's not a lot of options, and the best one could be the government stepping in but seeking a
rights offering by the company in exchange," he said.
Despite the warnings, there are signs of improvement with the gradual lifting of restrictions on
interstate travel and domestic tourism activities in the countries where AirAsia and its units operate,
Ernst & Young said.
The airline's recovery depends on government policies on travel, discussions with financial institutions
and investors and its ability to address concerns of its liabilities, the auditor said. as
(Updates with fundraising plans in eighth paragraph.)
©2020 Bloomberg L.P.
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By Kyunghee Park
Reported by Author
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