At MAS's current price of 21 sen per share, majority shareholder Khazanah would need to pay only 1.05 billion ringgit ($328 million) for the 30.6 percent of shares it does not already own, according to Reuters calculations.
Khazanah's board, chaired by Prime Minister Najib Razak, is expected to meet at the end of July to discuss the plan, one of the people said, adding that an announcement would be made by the end of this year.
The sources declined to be identified because of the sensitivity of the issue.
The state investor is working with CIMB Investment Bank on the restructuring, the sources added, but cautioned that the plan, and its details, are subject to change depending on the ultimate decision by the government.
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Khazanah said last month it was considering all options and would unveil plans within 6-12 months to restructure the airline, which has been squeezed into three straight years of losses by intense competition locally and on long-haul flights.
Hit by slumping ticket sales in the wake of the baffling disappearance of MH370 on March 8, the company turned in its worst quarterly performance in two years in the January-March period and is currently burning through its operating cash. Its shares have fallen 16 percent since the disappearance compared to a 2.8 percent gain in the benchmark stock exchange index.
MAS's chief executive said last week that the business needed to embrace "radical or sweeping" change to survive.
Asked to comment on the privatization plan on Wednesday, a Khazanah official said the fund had nothing to add to its June statement. Reuters contacted the relevant officials at MAS and CIMB, who did not immediately respond to requests for comment.
Taking MAS private could enable Khazanah to restructure it with little interference from shareholders and the powerful airline union, analysts say.
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Resistance to previous restructuring efforts by the union, which represents a workforce of around 20,000, has hampered the airline's efforts to cut costs and improve competitiveness in the face of fast-growing, low-cost carriers such as AirAsia Bhd and Indonesia's largest private airline, Lion Air.
The head of the MAS labor union, however, was recently quoted by local media as saying he would support a privatization if a new leadership was brought in.
"This (privatization) will remove pressure from the public, from politicians to the unions, hence focusing on its turnaround," said a Kuala Lumpur-based equity analyst who covers MAS but who declined to be identified by name because of the sensitivity of the issue.