HallyJet, Asians 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 groups 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 HallyJets passenger numbers has increased the need for short-term and long-term finance.

Question 3. Evaluate the view that HallyJets decision to raise long-term finance by selling shares is preferable to raising it through borrowing.