By Chester Tay

KUALA LUMPUR, Malaysia--AirAsia Group Bhd. shares are down sharply, with investors fearing the unprofitable airline might lose access to funding as it gets placed on a watch list for "financially distressed" companies.

Shares of the Malaysia-based carrier fell as much as 25% to a 14-month low in early trade Friday before paring losses to a 15% drop at the midday break.

The airline, which has been posting heavy losses like many carriers during the pandemic, said late Thursday that it had failed in an attempt to extend a grace period before being classified as financially distressed by the local stock exchange.

The label means the company could be forced to make monthly updates on progress in rectifying a shareholders' fund deficit of more than $1 billion, something that could take a few years, TA Securities transport analyst Steve Tan Kam Meng told Dow Jones Newswires. The stock will continue to trade, he added, provided that Bursa Malaysia is satisfied by the progress.

The labeling could affect AirAsia's future borrowing capacity, although the group should have sufficient liquidity to survive at least until end of this year after several fund-raising efforts including borrowings and a rights issue, Mr. Tan said.

The airline's future is largely dependent on the reopening of Malaysia's borders, which Mr. Tan said he expects to happen in the second half of the year.

If that happens, "AirAsia would still be loss-making this year, but we expect them to turn around next year," Mr. Tan said.


Write to Chester Tay at chester.tay@wsj.com


(END) Dow Jones Newswires

01-14-22 0001ET