SINGAPORE/NEW YORK (March 27): Singapore Airlines Ltd (SIA) said it would issue new shares and bonds in an effort to raise about S$8.8 billion (US$6.2 billion) to contend with the devastating slump in global travel demand from the new coronavirus pandemic. State investor Temasek Holdings Pte, the carrier’s biggest shareholder, said it would back the resolutions.
The airline will issue S$5.3 billion in new stock plus S$9.7 billion in 10-year mandatory convertible bonds, according to a statement released early Friday in Singapore. The carrier also arranged a S$4 billion bridge loan with DBS Bank to support near-term cash requirements.
The issues are expected to raise gross proceeds of about S$8.8 billion, according to a securities filing.
“We are especially grateful for Temasek’s strong vote of confidence,” Chairman Peter Seah said in the statement. “The board is confident that this package of new funding will ensure that SIA is equipped with the resources to overcome the current challenges.”
The coronavirus has plunged global aviation into an unprecedented crisis. Airlines could require as much as US$200 billion in government aid and bailout measures this year to survive, according to the International Air Transport Association, while CAPA Centre of Aviation has warned the pandemic will bankrupt most carriers by the end of May if they don’t get support.
“SIA has been seeing strong growth before the hit from the pandemic. It has also committed to fleet renewal,” Dilhan Pillay Sandrasegara, the chief executive officer of Temasek International, said in the statement. “This transaction will not only tide SIA over a short term financial liquidity challenge, but will position it for growth beyond the pandemic.”
What Bloomberg Intelligence says
“Singapore Air’s proposed issuance of new equity and mandatory convertible bonds would give it up to S$15 billion in cash, enabling the carrier to survive a Covid-19 outbreak of more than a year. Yet this comes at the cost of substantial dilution -- 60-82% for shareholders and 42-60% in book value per share, based on our calculations -- raising the question of whether other airlines might follow suit.”
-- James Teo, transportation analyst
-- Chris Muckensturm, transportation analyst
SIA requested a trading halt on Thursday before the market opened, pending an announcement. Its shares jumped 21% over the previous two days.
Asia’s second-biggest international carrier had already said it would cut scheduled capacity through April, defer aircraft deliveries, offer unpaid leave for employees and cut salaries, including for CEO Goh Choon Phong, who is taking a 30% pay reduction from April.
Temasek is expected to act as a lifeline for many companies in its portfolio. Domestic businesses have traditionally represented more than a quarter of its investments and its 12 biggest shareholdings by value plunged by almost US$24 billion between January 1 and March 20. The investor, which had S$44.2 billion in cash, cash equivalents and short-term investments as of March 31, 2019, has begun re-evaluating new deals so it can prepare to pump funds into existing assets instead.
SIA said Monday it was in talks with financial institutions on funding and has drawn on credit lines to meet immediate cash-flow requirements, while continuing to explore measures to shore up liquidity. Singapore announced measures in February to help ease operating costs for airlines, including rebates on aircraft parking and landing fees.
Airlines have been trying to secure funding and government aid in an increasingly desperate attempt to survive the coronavirus crisis, which has infected almost half a million people and killed over 21,000.
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