Singapore Airlines (SIA) told investors that its multibillion-dollar capital-raising exercise is aimed at strengthening its balance sheet amid the pandemic and leaving it well placed for the recovery.
Chief executive Goh Choon Phong outlined the rationale at a dialogue session with the Securities Investors Association Singapore (Sias) on Wednesday.
Mr Goh said: "Taken together, the rights issue and rights mandatory convertible bonds (MCBs) would allow us to meet our immediate liquidity requirements as we get through the Covid-19 crisis, and provide us with the financial flexibility to capture medium-to long-term growth beyond the situation."
SIA reported a full-year loss in its financial results announcement for the year ended March 31, with group operating profit falling 94.5 per cent compared with the year before.
Mr Goh said that retail shareholders can participate in the rights shares and rights MCBs on the same terms as institutional shareholders. The capital raised from both measures will be classified as equity, which means that it is shareholder funds.
"These will strengthen our balance sheet for the future, rather than burden it with a high level of debt. If we have a high level of debt, it will restrict our ability to raise further financing in the future," Mr Goh said.
The rights issue, comprising new ordinary shares and MCBs, aims to raise $8.8 billion.
Up to $6.2 billion of additional MCBs may also be issued within the 15-month period after the extraordinary general meeting to provide additional liquidity if the crisis is prolonged.
Mr Goh said: "It will allow us to be in a position of strength and be able to capture growth as soon as the situation improves. In terms of beefing up our finances, we have been working with banks for additional facilities.
"We will also continue to explore other sources of funding, including secured financing, and sales and leaseback of aircraft. In addition, we have not let up on a wide range of cost-cutting measures."
These include wage cuts, varying no-pay-leave schemes, deferral of non-essential projects and capital expenditure, and cutting capacity by 96 per cent until the end of next month. He noted that these measures substantially reduced the company's variable operating costs.
SIA shares hit a 30-year low of $3.74 at the midday break yesterday.
Mr Goh said the aviation industry is resilient enough to come through. "As you are aware, we have never seen such a sudden and steep drop in air travel. Today, there is no clarity on when the pandemic will abate and when the border controls will ease.
"Yet the aviation sector has seen many challenges in the past and has successfully overcome them.
"We believe that people will want to travel for business and for leisure... We have also seen how important air cargo is during this crisis in carrying essential supplies and medical supplies and food."