Singapore Airlines prices S$850m five-year convertible bonds at 1.625%

THE new S$850 million five-year convertible bonds by Singapore Airlines (SIA) will carry a coupon of 1.625 per cent per annum and be issued at par, after garnering strong investor interest.

The initial conversion price is S$5.743 for each new ordinary share, said the flag carrier in a bourse filing early Friday morning.

That represents a conversion premium of about 45.8 per cent over SIA's last closing stock price on Thursday.

If the bonds are all converted, the company will allot and issue about 148 million new ordinary shares, which make up about 5 per cent of the existing issued shares, excluding treasury shares.

The unsubordinated and unsecured bonds will mature on Dec 3, 2025.

SIA on Friday said all the convertible bonds have been fully placed to institutional investors and other investors.

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In a press statement, the national carrier noted that the offer was four times oversubscribed. "As a result, the issuance was upsized from the initial S$750 million to S$850 million with more attractive terms for SIA," it added.

The bond sale further strengthens the company's liquidity position and bolsters its ability to navigate the challenges from the Covid-19 pandemic, said SIA in the statement.

HSBC was the sole bookrunner and lead manager of the deal. John Huang, HSBC managing director and head of strategic equity and financing for the Asia-Pacific, said the transaction benefited from the announcement of the Singapore-Hong Kong air travel bubble as well as the risk-on investor sentiment driven by news of a potential Covid-19 vaccine breakthrough.

"This is a landmark transaction for the Singapore market and generated significant interest globally, with the final order book well oversubscribed with high-quality institutional investors," Mr Huang noted. This, he added, allowed SIA to achieve the highest conversion premium by an airline in Asia ex-Japan, and the largest convertible bond transaction from a Singapore-based issuer in nearly a decade.

The airline said it plans to allocate some 60-80 per cent of the proceeds from the deal for operating cash flow and debt service, while 20-40 per cent will go into capital expenditure.

It had proposed the issuance on Thursday evening. Earlier this year, SIA raised S$8.8 billion from a rights issue. It also retains the option of raising up to another S$6.2 billion in additional mandatory convertible bonds, which it can exercise by July 2021.

For the latest convertible bonds, holders can opt to convert them at least 41 days after the date of issue up to the close of business on the 10th day prior to the maturity date, both dates inclusive.

For the purposes of illustration, the net tangible asset (NTA) per share after the convertible bonds are issued but before any conversion would be S$5.06, based on the group's unaudited financial statements as at Sept 30, 2020, compared to S$5.04 before the issuance, SIA said.

And assuming full conversion of the bonds, the adjusted NTA per share is estimated to be S$5.07, based on the financial statements as at Sept 30, 2020.

Net gearing would stand at 0.26 time after the bonds are issued, and improve to 0.2 time assuming full conversion, from 0.27 time as reported in the Sept 30, 2020 financial statements, for illustrative purposes.

Goh Choon Phong, chief executive officer of SIA, said: "The placement was successfully executed with a highly competitive coupon and substantial conversion premium. Such attractive terms for the company underscore the strong confidence that investors have in Singapore Airlines, as well as our ability to successfully overcome the near-term challenges and emerge as a leader in the airline industry."

The company will continue to explore other means to strengthen its liquidity as necessary. "Positive discussions" have taken place on aircraft sale-and-leaseback transactions, as indicated in its half-year results.

Since the start of the 2020/2021 fiscal year, including the latest issuance, SIA has raised about S$12.2 billion in total. That includes the rights issue, S$2 billion from secured financing and more than S$500 million through new committed lines of credit and a short-term unsecured loan.

Including the new lines of credit, it will have access to more than S$2.1 billion in committed credit lines.

SIA will apply to list the convertible bonds and new shares arising from the conversion, on the Singapore Exchange.

Shares of SIA closed at S$3.94 on Thursday, up S$0.02 or 0.5 per cent.