SIA responds to Sias queries on S$15b cash call

Singapore

THE worsening environment for aviation amid the Covid-19 pandemic has made it very difficult for airlines to tap debt capital markets, Singapore Airlines (SIA) has said, in explanation of the need for its proposed S$15 billion debt and equity capital raising.

It was responding to questions from the Securities Investors Association (Singapore) or Sias in a statement on Friday, ahead of the April 30 extraordinary general meeting (EGM), when shareholders are to vote on the move.

The cash call includes an S$8.8 billion renounceable rights issue, which Sias worried may be dilutive for SIA shareholders and will hit retail shareholders who lack the cash to take up the rights.

The other component is an issue of up to S$6.2 billion in additional mandatory convertible bonds (MCBs) to be offered to shareholders via one or more rights issues down the line.

SIA said traditional funding opportunities are limited in the current climate. Secured financing and sale-and-leaseback transactions would also create more cash outflow obligations.

Raising capital through rights shares, rights MCBs and additional MCBS allows SIA to treat the capital raised as equity, strengthening its balance sheet.

As to the amount, SIA said it had evaluated its liquidity and operational requirements against funding sources to arrive at the S$8.8 billion figure. This would enable SIA to meet said requirements "for a good part of financial year 2020/2021".

Some S$3.7 billion will be used for operating cashflow, S$3.3 billion for capital expenditure such as aircraft purchases and aircraft-related payments, and S$1.8 billion for other fixed commitments such as debt servicing. SIA noted that the capital expenditure relates to past orders.

Up to S$6.2 billion in additional MCBs may be issued within 15 months of the EGM. This will provide extra liquidity if the Covid-19 crisis is prolonged, and provides resources to prepare for recovery, said SIA.

The rights issue price of S$3 per share represents a discount of 53.8 per cent to the last transacted price of S$6.50 on March 25, the last trading day before the announcement. It also represents a discount of 31.8 per cent to the theoretical ex-rights price of S$4.40 per share, which is the theoretical market price of each share assuming the completion of the rights issue.

"The issue price and discounts were determined after considering precedent rights offerings of SGX-listed issuers and are generally in line with market precedents," said SIA.

"The key consideration was to provide an opportunity and invitation to shareholders to join this rights share issuance at an appropriate discount, so that you may all participate in the future growth of the company as we emerge from this downturn in at least the proportion you held in the company prior to it."

As for the conversion price of S$4.84 per share for the MCBs upon maturity, the underlying objective was that this should be at a discount to the potential future trading price. The rights MCBs are also structured with a step-up yield to compensate investors for holding them for longer.

The EGM will be held on April 30 at 11.30am via a live webcast and audio feed. Pre-registration can be done on SIA's website, where shareholders may also submit questions by 11.30am on April 27.