Hard for airlines to tap financial markets amid crisis: SIA

Singapore Airlines (SIA) said its proposed $15 billion debt and equity capital-raising is needed because the worsening environment for aviation is making it difficult for airlines to tap financial markets.

Its remarks were in response to questions raised by the Securities Investors Association (Singapore), or Sias, last night and ahead of Thursday's extraordinary general meeting (EGM), when shareholders are to vote on the move.

The fund-raising includes an $8.8 billion renounceable rights issue, which Sias fears may be dilutive for investors and will hit retail shareholders without the cash to take part.

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

Sias asked SIA why it is trying to raise cash via equity shareholders instead of debt.

It replied that traditional funding opportunities remain limited. Secured financing and sale-and-leaseback transactions, for instance, would also create more cash outflow obligations, it added.

Raising capital through issuing rights shares, rights MCBs and additional MCBs allows SIA to treat the capital raised as equity, which will strengthen its balance sheet.

SIA said it had evaluated its requirements against funding sources to arrive at the $8.8 billion figure, an amount that would enable the company to meet those requirements "for a good part of financial year 2020/2021".

About $3.7 billion will be used for operating cash flow, $3.3 billion for capital expenditure such as new aircraft and aircraft-related payments and $1.8 billion for other fixed commitments such as debt servicing.

SIA noted that the capital expenditure relates to orders placed in the past.

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

SIA said it had evaluated its requirements against funding sources to arrive at the $8.8 billion figure, an amount that would enable the company to meet those requirements "for a good part of financial year 2020/2021".

The $8.8 billion will be raised via a three-for-two issue of up to 1.78 billion shares to raise $5.3 billion, and an offering of up to S$3.5 billion in 10-year MCBs.

The rights issue price of $3 a share represents a discount of 53.8 per cent to the last transacted price of $6.50 on March 25, the last trading day before the announcement, said SIA.

It added: "The key consideration was to provide an opportunity... 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."

The EGM will take place at 11.30am on Thursday and held via a live webcast and audio feed in line with Covid-19 control measures.

Pre-registration can be done on SIA's website, where shareholders may also submit questions by 11.30am on Monday.

THE BUSINESS TIMES

A version of this article appeared in the print edition of The Straits Times on April 25, 2020, with the headline 'Hard for airlines to tap financial markets amid crisis: SIA'. Print Edition | Subscribe