OCBC expects Singapore Airlines to need external funding due to virus hit

OCBC Credit Research believes Singapore Airlines (SIA) will likely require external financial funding soon, with travel demand drying up amid the novel coronavirus crisis.

In a credit update on Thursday, OCBC lowered SIA's issuer profile again, this time to Neutral (5) from Neutral (4), due to the "swift deterioration in industry conditions".

Measures announced by Singapore's government so far will deter international visitors from travelling to the city-state. Meanwhile, outbound demand from Singapore will also be significantly curtailed given the latest advisory for Singaporeans to defer all travel, and travel restrictions imposed by other countries towards visitors.

The flag carrier's internal liquidity will likely be stretched going into its first fiscal quarter ending June 30, 2020, due to marginal revenues amid fixed costs compounded by possible margin calls on SIA's fuel hedging position, the research team wrote.

SIA will likely need to raise funds from either its banking relationships or its major shareholders, OCBC said. Temasek Holdings owns a stake of about 55 per cent in the SIA group, while the remaining shareholding is dispersed.

OCBC noted that although Singapore's Finance Minister owns one special share in SIA, the research team's issuer profile for SIA has always been on a standalone basis without factoring in state support, and remains so.

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The credit research team said it will look to upgrade the airline's issuer profile only if it shores up its liquidity position and has external funding forthcoming - depending on the magnitude and terms of such funding.

However, given the current market dislocation, OCBC recommends investors who are already holding SIA bonds to hold rather than sell at fire sale prices if there is no need to do so.

In a separate report, DBS Group Research earlier on Thursday downgraded SIA to "hold", and reduced its 12-month target price to S$6.60 from S$10.40.

SIA shares were down S$0.41 or 6.3 per cent to S$6.12 as at 3.39pm on Thursday.