SIA aims to raise $15 billion with support from Temasek to combat Covid-19 fallout

Singapore Airlines flight crew arriving at Changi Airport Terminal 2 from London on SQ317, March 24, 2020. ST PHOTO: GAVIN FOO

SINGAPORE - Singapore Airlines (SIA) aims to raise up to $15 billion amid major financial challenges due to the Covid-19 pandemic which has hit the global air travel sector badly.

This will be done by issuing new shares to current shareholders to raise about $5.3 billion and issuing mandatory convertible bonds to raise up to $9.7 billion, the airline said on Thursday (March 26).

Temasek, which now owns about 55 per cent of the airline, has pledged to take up any remaining shares and bonds that are not subscribed.

The rights shares will be offered at $3 per share, a discount of about 54 per cent from the last traded price of $6.50 on Wednesday. The issue will be on the basis of three rights shares for every two existing shares held by shareholders.

The proposed convertible bond issue will be on the basis of 295 of these bonds for every 100 existing shares owned. The bonds, which come with zero coupon, will be priced at $1 each. If not redeemed before their maturity date in 10 years, the bonds will be converted to new shares based on a conversion price of $4.84 per share. This is a 10 per cent premium to the shares' theoretical market price assuming the completion of the rights issue.

SIA had called for a rare trading halt on Thursday morning, pending an announcement.

In the meantime, SIA has arranged for a $4 billion bridge loan facility with DBS Bank.

SIA's announcement came after Deputy Prime Minister and Finance Minister Heng Swee Keat said in Parliament on Thursday that the airline was considering corporate action, supported by Temasek, amid the coronavirus outbreak.

"I welcome Temasek's decision to lend support to SIA. SIA is an outstanding airline and a strategic asset for Singapore," Mr Heng told Parliament when he unveiled the Resilience Budget to provide a second round of measures to help firms and individuals affected by the outbreak.

"Through the Government's support for the aviation sector, and if necessary more direct support measures, we will make sure that SIA is able to come through this in good shape.

"Ultimately, this is about preserving the status of our air hub so that it can emerge stronger from this crisis," he added.

The SIA Group sits at the heart of Singapore's aviation system and anchors its position as an air hub, said Mr Heng.

He noted that SIA accounted for more than half of Changi Airport's passenger traffic and cargo tonnage last year.

"As the main hub carrier, SIA links us to the rest of the world. Many foreign airlines choose to come to Changi because they can tap on SIA's connectivity to the rest of the region," Mr Heng said.

"A diminished SIA will undermine our air hub's ability to recover from the crisis. Air travel will eventually resume when Covid-19 comes under control. Until then, SIA will need liquidity to tide over this outbreak," the minister further added.

In this regard, SIA will benefit from the enhanced Jobs Support Scheme and the enhanced Aviation Support Package which will reduce its operating expenditure.

The airline had announced that it will slash its capacity as countries, including Singapore, tighten their borders.

It had this week cut 96 per cent of its scheduled capacity up to the end of next month.

The airline has also further cut the salaries of senior employees and looked into measures to reduce capital expenditure and operating costs.

Its low-cost unit Scoot has also suspended most of its network, resulting in the grounding of 47 out of its fleet of 49 aircraft.

Mr Shukor Yusof of Endau Analytics said: "It will definitely help shore up a fast depleting balance sheet and reassure investor and passenger confidence in SIA.

"More importantly, the amount to be raised shows the importance and value that the Singapore government puts in its flag carrier... this is the by far the biggest financial aid to an airline outside of the US."

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