SIA to redeem mandatory convertible bonds for S$3.86b

SINGAPORE Airlines (SIA : C6L 0%) will be redeeming for S$3.86 billion all of its 10-year mandatory convertible bonds issued in June 2020 at a redemption rate of 110.408 per cent of the principal amount.

In a notice filed on the Singapore Exchange on Tuesday (Oct 25), SIA said that payout will be made to bondholders on Dec 8, 2022.

For bondholders, the yield-to-call works out to 4 per cent a year.

“This will be funded by existing cash reserves, which have risen in line with the strong recovery in the demand for passenger air travel,” said SIA in a statement on the same day.

“The redemption of the (mandatory convertible bonds) supports the ongoing recalibration of the Group’s balance sheet as it recovers from the impact of the Covid-19 pandemic.”

These mandatory convertible bonds were a part of a fundraising effort by the national carrier in the early days of the Covid-19 pandemic, as air travel was decimated from border closures around the globe.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

On top of the S$3.5 billion mandatory convertible bonds, the airline was also raising S$5.3 billion in new equity, bringing the total raised to S$8.8 billion.

About a year later, in May 2021, it raised another S$6.2 billion by issuing a second tranche of mandatory convertible bonds.

SIA has the option to redeem these zero-coupon bonds, worth a total of S$9.7 billion, any time before 2030, or these can be converted into ordinary shares upon maturity.

The mandatory convertible bonds carry a yield-to-call of 4 per cent per annum during the first four years, 5 per cent per annum between the fifth and seventh year, and 6 per cent beyond that to maturity.

SIA said in its statement that these bonds are presently “our most expensive financing tool, notwithstanding the rising interest rate environment”.

With the resumption of air travel since the end of last year making for an improved balance sheet for the carrier, analysts had previously said that the airline would redeem its convertible bonds earlier than expected to avoid a significant expansion in its share base.

For FY2022, SIA’s annual net loss dipped by nearly 80 per cent to S$962 million and the group managed to achieve an operating cash surplus of S$824.4 million. As at Jun 30 this year, the company had a cash balance amounting to S$16.1 billion.

SIA said: “The SIA Group recognises the need to maintain a balance between distribution to shareholders and retained earnings for capital replacements and other funding needs. The group will monitor market conditions, adopt appropriate liquidity postures, and pursue a strategy that continues to support the company’s recovery and growth.”