SIA decisions on MCBs and dividends dependent on recovery and financial performance

WE refer to Ben Paul’s Hock Lock Siew column “To protect investors, boards should expose the divergent interests of controlling shareholders”, dated Sep 8, 2022.

The Covid-19 pandemic led to a global collapse in the demand for air travel. With international borders closed, passenger traffic collapsed, and the Singapore Airlines : C6L 0% (SIA) group had to drastically reduce capacity to 3 per cent of pre-pandemic levels in April 2020. The significant decline in passenger revenues led to 3 consecutive years of net losses for the group. Navigating the pandemic has been the biggest challenge in the SIA group’s history.

Early in the pandemic, the group was alert to the liquidity crunch that would arise from a sustained disruption to passenger traffic – given the scale of the unprecedented crisis faced by the airline industry. This had to be urgently addressed, as not doing so could have risked the survival of the group.

The group announced a rights issue in March 2020, and this was structured with 2 components – rights shares and rights mandatory convertible bonds (MCBs). They were offered to all shareholders on a pro-rata basis. This structure, with the MCBs, provided flexibility to the group, as it was unknown how long the Covid-19 pandemic would last, and what its impact would be on the group.

To provide certainty of funding during this critical period, Temasek Holdings, SIA’s major shareholder, gave an irrevocable undertaking to subscribe to its pro-rata entitlement for both the rights shares and the rights MCBs, as well as all unsubscribed rights remaining after the fulfilment of all valid applications by other shareholders. Unlike the rights shares, which were oversubscribed, the MCBs were undersubscribed. As a result, Temasek took up the major share of those instruments.

The SIA group raised S$15 billion in total through the rights issue. We are grateful to all shareholders, including Temasek and our institutional and retail shareholders, for their strong support.

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The support from shareholders through the rights issue allowed the group to raise an additional S$7.4 billion in liquidity via other sources at attractive rates, for a total of S$22.4 billion in fresh liquidity since the pandemic began. This enabled the group to meet ongoing financial commitments and provided the resources to invest in our business and people, allowing us to emerge stronger.

The MCBs are structured with a step-up in yield-to-call in year 4, and subsequently year 7, making their redemption more costly for SIA over time. The MCBs would be dilutive for shareholders if not redeemed before their maturity date in June 2030.

We acknowledge the desire on the part of all shareholders to have more clarity on matters such as the redemption of MCBs and resumption of dividend payments. Decisions on such matters, however, are dependent on the recovery trajectory, as well as our financial performance. In addition, it is important to pursue growth opportunities where available to enhance long-term shareholder value.

We will balance the above considerations as we review our options going forward.

The SIA group would like to thank all shareholders, investors, customers, partners, and staff for their continued support, which we do not take for granted.

Tan Kai Ping, executive vice president, finance and strategy, Singapore Airlines