SINGAPORE Airlines (SIA) : C6L 0% announced that it intends to redeem 50 per cent of the zero-coupon mandatory convertible bonds (MCBs) issued in June 2021. 

The listed national flag carrier said on Wednesday (May 10) that the accreted principal amount payable, being 108.243 per cent of the principal amount of the MCBs, will be approximately S$3.4 billion. The yield-to-call works out to be 4 per cent per annum.

This redemption will be carried out on a prorated basis, with the redemption amount to be paid to eligible bondholders on Jun 26.

The redemption will be fully funded by the airline’s cash reserves, which stood at S$15.4 billion as at Dec 31, 2022. 

Asked about the remaining MCBs, an SIA spokesperson said: “It would be our ambition to redeem the remaining MCBs before maturity (in June 2030). Such redemption would require further planning in conjunction with the review of our overall liquidity target.”

This announcement comes before the airline publishes on May 16 its financial results for the full year ended March – expected to be a banner year in view of its robust passenger traffic. The SIA spokesperson said the partial redemption of the 2021 MCBs was part of the group’s “post-pandemic review of our long-term liquidity strategy and ongoing recalibration of our balance sheet, as we progressively bring our liquidity down to business-as-usual level”.

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The full redemption of the 2020 MCBs, announced last October with the payout in December 2022, and this partial redemption of the 2021 MCBs will also reduce the risk of potential dilution of shareholders, the spokesperson added.

The 2020 and 2021 MCBs were part of the S$15 billion rights issue approved by SIA shareholders in April 2020, to tide the airline group through the pandemic, which decimated travel for two years. 

These bonds, SIA had said previously, were “our most expensive financing tool, notwithstanding the rising interest rate environment”.

The yield-to-call for the 2020 MCBs was 4 per cent per annum. It will also be 4 per cent for the 2021 tranche if it is redeemed in the first four years, and will be stepped up to 5 per cent per annum between the fifth and seventh year. Beyond that to maturity on Jun 8, 2030, the yield-to-call will rise further to 6 per cent. SIA’s share price was up 0.5 per cent to S$5.88 on Wednesday; its 2021 MCB price was flat at S$1.025 before the redemption announcement.