Tiger Airways 'bleeding cubs' to milk gains from cash-raising move

Bulk of the $70m-90m are for funding.

According to CIMB, they think the market will only receive the transaction with open arms if cash can be deployed to profitable growth areas.

Tiger plans to pour S$70m-80m into its associates and potential investments in new ventures.

Given that Tiger’s associates SEAIR (Philippines) and Mandala (Indonesia) are in their infancy and are still losing money, Tiger will have to allocate resources to get these cubs up to speed.

Here's more from CIMB:

As such , we think the bulk of the S$70m-90m will be used to fund its bleeding associates in the coming quarters. Tiger is currently funding associate losses through shareholder loans.

In 3QFY13, it had extended S$11.6m in shareholder loans to Mandala and SEAIR. Tiger will have to expand its fleets in the Philippines and Mandala, which could suggest even larger cash outflows to these associates.

In our estimation, the allocated S$70m-80m proceeds can at best fund its bleeding associates for 6-8 quarters. In essence, around 30% of the proceeds from this issue will be deployed to prop up existing loss-making operations.

Any meaningful returns from the investment can only be seen in, at best , three years, assuming Tiger’s associates are able to break even within this timeframe.

This is a tall order , given the tough operating environment in Indonesia and the Philippines. Considering dilution from this issue and a lack of profitable deployment of proceeds, we deem this capital-raising a near-term negative for Tiger.