SIA gets shareholder nod for S$15b cash call amid Covid-19 crisis

Singapore

SHAREHOLDERS voted in favour of Singapore Airlines' (SIA) cash call at a virtual extraordinary general meeting (EGM) on Thursday, paving the way for the airline to raise up to S$15 billion as it battles its biggest crisis to date.

At the EGM, 99.79 per cent of the votes were in favour of the first resolution. This covers the raising of S$8.8 billion through a 3-for-2 rights issue of shares and a mandatory convertible bond (MCB) issue.

The second resolution was voted through with 99.66 per cent of the votes in favour. This allows the airline to issue up to S$6.2 billion of additional MCBs. These may be issued within a 15-month period after the EGM to shore up liquidity if the pandemic drags on.

Under the rights issue, the airline will issue up to 1.77 billion new shares at S$3 per share, on the basis of three rights shares for every two existing shares held by shareholders, to raise S$5.3 billion. The issue price represents a discount of 53.8 per cent to the last transacted price of S$6.50 on March 25, and a discount of 31.8 per cent to the theoretical ex-rights price (TERP) of S$4.40 per share.

A further S$3.5 billion will be raised via a 10-year MCB issue on the basis of 295 rights MCBs for every 100 existing shares owned. Priced at S$1 each, the bonds come with zero coupon so as to relieve SIA of cashflow pressures in the current challenging climate. If the airline does not redeem the 10-year MCBs before maturity, they will be converted into shares based on a conversion price of S$4.84, a 10 per cent premium to the TERP.

Where redemption is concerned, the rights MCBs are structured with a step-up yield of 4-6 per cent per annum to compensate investors for holding onto them for a longer period. The step-up also acts as an incentive for SIA to redeem the MCBs at the earliest possible date, SIA said in a filing to the Singapore Exchange in response to questions from shareholders.

When they are redeemed, the MCB holders will be paid the principal as well as accrued interest. The bonds carry a yield to call of 4 per cent per annum for the first four years from the issue date. This yield steps up to 5 per cent per annum from the fifth year, and subsequently goes up to 6 per cent per annum from the eighth year.

Should they prefer, shareholders can opt for either the rights issue or MCBs instead of both. Or they can opt for neither. Shareholders can also participate in part or in full.

Majority shareholder Temasek - which holds a stake of 55.4 per cent in SIA - had previously said it would vote in favour of both resolutions and had committed to subscribe for its full entitlement as well as to mop up balances of both issuances that are not taken up.

Of the S$8.8 billion to be raised under the rights issue, the flag carrier will use S$3.7 billion to fund operating cashflow such as fixed costs and other operating expenses. Another S$3.3 billion will go towards aircraft purchases and aircraft-related payments, and S$1.8 billion will be used for debt servicing and other contractual payments.

Singapore's flag carrier said that it was too early to comment on the next steps for its investment in Virgin Australia (VA), in which SIA holds a 20 per cent stake. "Australia remains an important market to us, and we will evaluate our options in due course," the airline said in a response to shareholder questions released prior to the EGM. "SIA has no requirement or obligation to put in capital for VA. The equity investment in VA is fully provided for in our books. and we have no loans to VA."

VA was the first in the region to go into voluntary administration after failing to secure a government bail-out. With border restrictions in place as countries scramble to contain the Covid-19 pandemic, airlines worldwide have seen their operations paralysed. National carriers are clamouring for financial aid from governments and trying to shore up loans.

The SIA group - which has no domestic market to fall back on - has had to make sweeping capacity cuts. It has cancelled 96 per cent of its scheduled flights till June, grounding the vast majority of its fleet.

SIA seemed more upbeat on its joint venture Vistara, highlighting in the response to shareholders' questions that the Delhi-based airline is well-positioned for recovery post- Covid. It added: "We remain committed to supporting Vistara in its fleet plans."

Shares in SIA closed two Singapore cents, or 0.33 per cent, higher on Thursday to S$6.11.