SIA to raise S$15 billion through issuing new shares & bonds as it grapples with Covid-19 impact

SIA offering shares for sale.

Sulaiman Daud| March 27, 02:06 AM

Singapore Airlines Limited (SIA) announced late on Mar. 26 that it will be offering more equity for sale to potential new shareholders.

Up to S$9.7 billion worth of equity will be offered through 10-year Mandatory Convertible Bonds.

Existing shareholders will also be offered S$5.3 billion in new equity.

SIA intends to use the proceeds from this to fund capital and operational expenditure requirements.

What does it all mean?

In case you're not entirely sure what's going on, you may have heard that SIA is in some trouble due to the impact of the global Covid-19 pandemic on the aviation sector.

With countries around the world imposing strict travel restrictions, including Singapore, the demand for air travel has fallen drastically.

Measures such as pay cuts and no-pay leave for SIA staff have been implemented to save costs, along with reducing air capacity.

But with projected losses of S$1.26 billion, it may not be enough.

Up for sale

It's clear that SIA needs an injection of cash -- even more so if the virus outbreak persists and air travel doesn't get back to normal for many months.

By offering bonds and equity to existing shareholders for sale, which is a common fundraising exercise, SIA gets cash when it urgently needs it the most.

This means that there will be more shareholders, and the current shareholders may see the value of their existing shares in SIA decrease.

But that's better than letting SIA go bankrupt entirely.

In addition to the S$15 billion sought from shareholders, SIA has also arranged for a bridge loan facility with DBS Bank, worth S$4 billion.

This will help to support SIA's near-term liquidity requirements.

Terms and conditions

Both the shareholder equity and the bonds will be offered on a pro-rata basis via a rights issue.

Both will be treated as equity in SIA's balance sheet.

Both rights issuances are subject to shareholder approval at an extraordinary general meeting (EGM), to be held sometime later.

SIA's largest shareholder, state-investment fund Temasek Holdings, will vote in favour of the resolutions and will procure a subscription for its full entitlement and the remaining balance of both issuances.

Temasek and government help for aviation sector

In his Supplementary Budget speech on Mar. 26, Deputy Prime Minister and Finance Minister Heng Swee Keat mentioned that Temasek will "lend support" to SIA to help tide the national carrier over during this time of crisis.

Heng also announced additional support for the aviation sector in his speech, such as offsetting 75 per cent of the first monthly S$4,600 of wages.

The aviation sector is a key pillar of Singapore’s economy, supporting more than 12 per cent of its GDP and 375,000 jobs.

A S$350 million support package was also announced.

Related story:

Top image from Shawn Ang via Unsplash.