SINGAPORE (THE BUSINESS TIMES) - The worsening environment for aviation amid the Covid-19 pandemic has made it very difficult for airlines to tap debt capital markets, Singapore Airlines (SIA) has said, in explanation of the need for its proposed $15 billion debt and equity capital raising.
It was responding to questions from the Securities Investors Association (Singapore), or Sias, in a Singapore Exchange statement on Friday evening, ahead of the April 30 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 worried may be dilutive for SIA shareholders and will hit retail shareholders who lack sufficient cash to subscribe for the rights.
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.
Asked why it chose to raise cash via equity shareholders instead of debt, SIA said that traditional funding opportunities remain limited in the current climate. 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 for the future.
As to why it was raising such a large amount, SIA said it had evaluated its liquidity and operational requirements against funding sources to arrive at the $8.8 billion figure. This amount would enable the company to meet said requirements "for a good part of financial year 2020/2021".
Some $3.7 billion will be used for operating cash flow, $3.3 billion for capital expenditure such as aircraft purchases 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, which will provide extra liquidity if the Covid-19 crisis is prolonged, and also provides resources to prepare for recovery, said SIA.
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 $3.5 billion in 10-year MCBs.
The rights issue price of $3 per 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 also represents a discount of 31.8 per cent to the theoretical ex-rights price of $4.40 per share, which is the theoretical market price of each share based on the last transacted price on March 25, and assuming the completion of the rights issue.
"The issue price and discounts were determined after considering precedent rights offerings of SGX-listed issuers and are generally in line with market precedents," said SIA.
"The key consideration was to provide an opportunity and invitation 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."
As for the conversion price of $4.84 per share for the MCBs upon maturity, the underlying objective was that this should be at a discount to the potential future trading price. The rights MCBs are also structured with a step-up yield to compensate investors for holding them for longer.
As for the EGM, to be held on April 30 at 11.30am via a live webcast and audio feed in line with Covid-19 control measures, SIA said that pre-registration can be done on its website, where shareholders may also submit questions by 11.30am on April 27.