Sats to raise up to S$800m from rights issue to fund WFS acquisition
Uma Devi
INFLIGHT caterer and ground handler Sats on Thursday (Dec 1) said it would raise up to S$800 million via a renounceable underwritten rights issue to partially fund its acquisition of air cargo handler Worldwide Flight Services (WFS).
The rights issue is expected to be launched in the first quarter of next year and is subject to “conducive market conditions” and the satisfaction of regulatory approvals.
Details of the issue, including pricing, have not yet been finalised. But Sats chief financial officer Manfred Seah offered some comfort to shareholders, saying a massive discount would only be necessary in “distressed situations” and as a last resort. “Sats is certainly not in that position,” he said.
Temasek, which holds 39.7 per cent of Sats through subsidiary Venezio Investments, has indicated its intention to subscribe for its pro-rata entitlement to the rights issue. Sats directors also intend to subscribe for their entitlements.
Asked why Temasek is not underwriting the issue, as it had done for Sembcorp Marine and Singapore Airlines, Seah said if Temasek were to do so then it would trigger a mandatory general offer or have to go to shareholders for a whitewash waiver.
In response to a query by The Business Times on why it had not considered raising its stake in Sats, Temasek said that it is “supportive” of Sats’ acquisition of WFS.
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Seah said that a panel of banks will “stand behind” the rights issue, and that it is “envisaged” that they would underwrite any entitlements not taken up by shareholders.
These banks include, but are not limited to, the principal banks of Sats, he said.
The rest of the funding for the S$1.8 billion acquisition will come from a term loan and internal cash balances.
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The term loan is a three-year euro-denominated loan of about S$700 million, with an all-in annual cost of 4-4.5 per cent based on the prevailing euro interbank offered rate. Sats said this loan is “comparable” to the terms of its existing borrowing facilities.
Seah added that Sats has a bridge loan of about 1.2 billion euros (S$1.7 billion) that is “enough to cover” the acquisition if market conditions are not conducive for a rights issue.
On Sep 28, Sats had announced the acquisition of WFS for a maximum total consideration of 1.3 billion euros. The deal, the company said then, would propel the company into a global player in the air cargo market and give it an “unmatched global footprint”.
Analysts, however, have voiced concerns that the acquisition would drive up Sats’ debt levels.
The market has largely panned the deal, with Sats’ shares falling some 30 per cent since it was announced.
Seah, however, said the company needs to adopt a “balanced mix” of equity capital and gearing that the company “can live with”.
At the outset, he said, gearing may be elevated relative to Sats’ historical levels – but noted that it is not elevated to a level that is “excessive” compared to its peers. “So you need to be circumspect here,” said Seah.
He said Sats has the ability to delever within “a reasonable time period” of 24 to 36 months, and the company will still be “investment grade”.
In response to a question on whether the higher gearing levels will hurt dividend payouts to shareholders, Seah reiterated that the company will resume dividend payouts when it is profitable without government relief. The acquisition would not change this, he added.
In terms of existing challenges in the cargo market, Seah said the industry softness for a few quarters could be due to issues such as geopolitical tensions, recessionary risks and inflationary pressures. In such an environment, he said, it is important to look at industry players who are best able to “defend themselves”.
“For (Sats), it’s important that we continue to gain market share by winning contracts,” he said, adding that the cargo market’s challenges are “defensible by good players and leaders”.
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