HallyJet, Asian's second largest low-cost airline, saw its share price rise strongly on

its first day of trading as a public limited company, rising 10% to RM3.42. The

offering was priced at RM3.10 a share with the issue of 63 million shares raising

RM195 million.

The issue, solely to institutional investors, represented about 25% of the enlarged

share capital. The stake held by Georgiana Haji- Ioannou, founder and chairwoman

of the company, was valued at about RM328 million. Mrs. Haji-Ioanno and her

brother and sister still control about 75% of HallyJet.

Investment bankers said the issue attracted strong interest. The performance of the

shares had been helped by the strong rise of Ryanair, the leading Asian low-cost

airline, which has been used by investors as a yardstick for the HallyJet offering.

HallyJet shares have also proved attractive because the company has seen its

passenger numbers rise markedly over previous years. Capital raised from the share

issue is earmarked to support the purchase of new aircraft as part of the group's

plans for a rapid expansion during the next few years, which includes the addition of

32 new Boeing 737-700s, more than doubling the size of the fleet.

Question 1. Outline two possible sources of long-term finance available to HallyJet.

Question 2. Explain why an expansion in HallyJet's passenger numbers has

increased the need for short-term and long-term finance.

Question 3. Evaluate the view that HallyJet's decision to raise long-term finance by

selling shares is preferable to raising it through borrowing.