SINGAPORE - The Singapore Airlines (SIA) Group will on Dec 8 fully redeem its first tranche of rights mandatory convertible bonds (MCBs) that were issued in 2020 to strengthen its balance sheet.

The accreted principal amount payable by SIA will be $3.86 billion.

Faced with a total shutdown of the civil aviation market in 2020 due to Covid-19, the company raised $3.5 billion through the rights MCBs.

The redemption will be funded by existing cash reserves, which have risen in line with the strong recovery in the demand for passenger air travel.

As at June 30, 2022, the group had a cash balance amounting to $16.1 billion.

The move supports the ongoing recalibration of the group’s balance sheet as it recovers from the impact of the Covid-19 pandemic.

“The MCBs are at present our most expensive financing tool, notwithstanding the rising interest rate environment. The initial yield-to-call is 4 per cent per annum, compounded on a semi-annual basis, and this steps up to 5 per cent and subsequently 6 per cent prior to maturity,” SIA said in a statement.

For any MCBs not redeemed by the maturity date, the final accreted principal amount of the MCBs will be converted into ordinary shares at the conversion price (currently at $4.84), resulting in dilution to existing shareholders.

SIA said it recognises the need to maintain a balance between distribution to shareholders and retained earnings for capital replacements and other funding needs.

In 2021, the group had raised an additional $6.2 billion in liquidity through a second tranche of rights MCBs.