SIA expects MCB's S$6.2b to last till early 2023; privatisation is shareholders' call
SINGAPORE Airlines (SIA) sees the S$6.2 billion to be raised from the issuance of mandatory convertible bonds (MCBs) will last it through to the financial year ending March 2023.
As for privatisation, it is not a matter for SIA to consider, given it is a shareholder action, the airline said in a seven-page response on Tuesday to queries by the Securities Investors Association (Singapore) or Sias.
The investor watchdog last week quizzed the flag carrier on various aspects including whether the group, majority-owned by state investor Temasek, would be privatised and the circumstances surrounding the impending issuance of MCBs.
The mainboard-listed national carrier said that the MCB issuance garnered almost 100 per cent approval from shareholders in April 2020, and also nearly the same level of support when the resolution was presented again in July 2020.
The airline reiterated that the issuance is not immediately dilutive, yet it provides the company with certainty of funding and the flexibility to manage its capital structure with the redemption feature. And the absence of a coupon also allows SIA to conserve cash.
While operating cash burn has been reduced to between S$100 million and S$150 million a month from S$350 million, it noted the recovery trajectory is uncertain and it therefore wants to shore up liquidity.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The proceeds from MCBs will be treated as equity in the balance sheet, bolstering SIA's equity base and affording it options to raise further debt if necessary. And the flag carrier will look at other ways to build up its liquidity, including sale-and-leasebacks.
Operating leases, the carrier said, do not afford it an asset light strategy as accounting treatment recognises such leases as an asset.
Given that cash burn has declined, there is less amount required for operating purposes. Thus, the airline will allocate more of the S$6.2 billion proceeds to debt servicing and capital expenditure.
"We have taken a multi-year view with this fundraising exercise, combining the need to manage the crisis on hand with the need to invest for the future," SIA said.
The airline also stated that the goal is to provide long-term value for shareholders by ensuring that it returns to profitability and remains a leader in the airline industry.
SIA also explained the two tranches of MCBs are substantially similar, except that the upcoming one has a tenor of slightly less than nine years while having the same June 8, 2030 maturity date as the MCBs issued in 2020.
A shareholder who holds S$1,000 in principal amount of this tranche of MCBs can expect to receive 350 ordinary shares upon conversion, whereas a holder of the earlier tranche will receive slightly more at 373 shares given a longer tenor, assuming there is no adjustment to the conversion price.
SIA shares were down 0.8 per cent or S$0.04 at S$4.94 on Tuesday at 10.59am, while the earlier tranche of the MCB was trading flat at S$1.004. READ MORE:
SIA cuts cash burn to S$100-150m a month; sees robust bookings for travel bubble
Copyright SPH Media. All rights reserved.
