SIA proposes convertible bond issue with indicative size of S$850m

Singapore

SINGAPORE Airlines (SIA) is proposing to issue up to S$850 million in the principal amount of bonds, convertible into new ordinary shares in the company's capital, it announced on Thursday night after market close.

The convertible bonds are proposed to be placed with institutional investors and other investors. HSBC has been appointed as the sole book runner and lead manager.

The S$850 million figure is an indicative size. The terms of the bonds, including the aggregate in principal amount to be issued, will be confirmed upon the pricing of the issue, after HSBC completes a book-building exercise. Pricing was expected to come on or around Thursday, with SIA to make an announcement of the definitive terms afterwards.

SIA will apply to the SGX to list the convertible bonds and new shares, with the issue being conditional upon in-principle approval for their listing.

The closing date of the issue is expected to be on or about Dec 3. SIA expects to use the proceeds to fund operating cash flow, debt service and capital expenditure.

SIA said: "The financial effects of the issue will depend on the terms of the convertible bonds and be disclosed in the announcement to be issued by the company following the pricing of the issue."

Earlier this year, SIA raised S$8.8 billion from a rights issue, and has the option of raising up to another S$6.2 billion in additional mandatory convertible bonds (MCBs), which it can exercise by July 2021.

Independent aviation analyst Brendan Sobie, from Sobie Aviation, said that SIA may have chosen to issue convertible bonds instead of activating its MCB programme as the latter has relatively high yield rates.

"I see the MCB as a safety net if SIA is unable to secure new capital through other sources," he said. With SIA having been looking at options for improving liquidity, the convertible bonds issue could be followed by other moves in the next few months.

Aviation consultancy Endau Analytics founder Shukor Yusof noted that convertible bonds are typically favoured by firms with low credit ratings, so the move is "a bit odd" given SIA's "solid credit profile". "It would appear SIA is very keen to cut cost wherever it can," he added.

But he noted several advantages of raising funds via convertible bonds: it is cheaper, offers the accounting advantage of tax-deductible interest payments, and gives more flexibility, with bondholders standing to gain if SIA stock rises in future.

The national carrier's shares closed up two Singapore cents or 0.51 per cent at S$3.94 on Thursday, before the news.