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SIA to raise S$8.8 billion via rights issue of shares and convertible bonds amid Covid-19 crisis

WITH the Covid-19 pandemic paralysing airline operations worldwide, Singapore Airlines (SIA) is raising S$5.3 billion in new equity and S$3.5 billion via 10-year mandatory convertible bonds (MCBs) as its largest shareholder Temasek Holdings throws its support behind the national carrier.

According to a filing to the Singapore Exchange early on Friday morning, the company is proposing a renounceable rights issue of new ordinary shares and mandatory convertible bonds to raise about S$8.8 billion.

Up to 1.77 billion rights shares will be issued at S$3 per share on the basis of three rights shares for every two existing ordinary shares held by shareholders. The issue price represents a discount of about 53.8 per cent to the last transacted price of the S$6.50 on March 25, that being the last trading day prior to the announcement.

Meanwhile, up to S$3.5 billion of rights MCBs will be issued at S$1 for each rights MCB on the basis of 295 rights MCBs for every 100 existing ordinary shares held by shareholders. The rights MCBs are convertible into fully paid up new shares based on the conversion price of S$4.84, which is a 10 per cent premium to the theoretical ex-rights price of S$4.40 per share.

In addition, SIA will be seeking approval to further issue up to S$6.2 billion of additional MCBs on similar terms and to be offered to shareholders via one or more rights issues down the line. This could take place within 15 months of being approved by shareholders.

The national carrier said that Temasek - which currently holds a stake of 55.46 per cent - will vote in favour of the resolutions and has committed to subscribe for its full entitlement and the remaining balance of both issuances.

Meanwhile, SIA has also arranged a S$4 billion bridge loan facility with DBS Bank to help meet the airline’s near-term liquidity needs.

Of the S$8.8 billion in proceeds, SIA plans to use S$3.7 billion for operating cashflow, S$3.3 billion for aircraft purchases and aircraft related payments, and the rest for debt servicing and other payments.

The Covid-19 pandemic has presented an unprecedented crisis for airlines around the world, forcing them to slash capacity, ground aircraft and shed jobs as countries tighten their borders to visitors. The International Air Transport Association has estimated that global carriers will need up to US$200 billion in aid from governments to save the aviation industry.

SIA chairman Peter Seah said: “This is an exceptional time for the SIA Group. Since the onset of the Covid-19 outbreak, passenger demand has fallen precipitously amid an unprecedented closure of borders worldwide. We moved quickly to cut capacity and implement cost-cutting measures.”

He added: “The board is confident that this package of new funding will ensure that SIA is equipped with the resources to overcome the current challenges, and be in a position of strength to grow and reinforce our leadership in the aviation sector.”

Temasek International chief executive Dilhan Pillay Sandrasegara, highlighted: “This transaction will not only tide SIA over a short-term financial liquidity challenge, but will position it for growth beyond the pandemic.”

He went on to add that Temasek fully supported SIA’s ongoing efforts to transform itself, which includes the modernisation of its fleet with the acquisition of new fuel efficient aircraft over the next few years in line with its expansion strategy.

The SIA group is facing its biggest crisis to date, having announced on Monday that it would make sweeping capacity cuts of 96 per cent until end-April. This will see it ground 138 SIA and SilkAir planes out of their combined 147 aircraft while low-cost unit Scoot is suspending almost its entire network.

Shares in SIA were halted from trading on Friday morning pending the release of the announcement.