Singapore Airlines to borrow up to $1.02b through the issue of bonds

The airline group has raised $21.6 billion in fresh liquidity since the start of the Covid-19 pandemic in early 2020. PHOTO: ST FILE

SINGAPORE - In a move to raise fresh funds before interest rates spike later this year, Singapore Airlines (SIA) is borrowing up to US$750 million (S$1.02 billion) via the issue of bonds.

The US dollar bond deal is being done via BNP Paribas and Standard Chartered Bank and is believed to be open to all global lenders.

While declining to comment directly on the matter, a company source told The Straits Times that the group was always looking to opportunistically raise cash and add to its liquidity position as the aviation market starts to recover.

While some of the funds will go towards capital expenditure (capex), monies raised will also be used to pay off some loans and for operational needs.

The airline group has raised $21.6 billion in fresh liquidity since the start of the Covid-19 pandemic in early 2020.

A large part of this was used early in the pandemic for one-off expenses, including refunds to customers at the height of the global shutdown, repayment of bonds, and repayment of a bridging loan.

SIA ended the first half of its financial year on Sept 30 last year with $13.5 billion left on its balance sheet. Operating cash burn was reduced to near break-even ($106 million for the six months, or an average of $18 million a month, compared with $350 million a month at the height of the pandemic).

The company has been rejigging its order portfolio with aircraft makers to manage its liquidity and capex in the face of changing market circumstances and its needs.

It deferred some $4 billion of capex through its February 2021 order book agreements with Boeing and Airbus. It also converted orders for 14 Boeing 787-10s into 11 larger 777-9s, to secure longer-term replacements for its Airbus A380s.

In November last year, the company inked a deal with Airbus for seven A350F freighters through the conversion of existing orders for 15 A320neo and two A350-900 passenger aircraft.

This enabled it to adjust its capital expenditure while going ahead with the renewal of the 747-400F cargo fleet to meet cargo demand.

The latest fund-raising exercise comes amid signs that central banks will start raising interest rates this year in the face of rising inflation.

In the United States, the Federal Reserve has indicated that it will be more aggressive in its approach to tackling inflation. Analysts expect at least four rounds of interest rate hikes over the next 12 months.

This will push rates up across the world as other banks follow suit.

Higher interest rates can weigh down the bottom line of companies that do not have enough cash on their balance sheets and need to borrow. So it makes sense for companies that can to go to the market for funding now to lock in prevailing lower rates.

This is what SIA is trying to do.

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