SINGAPORE Airlines has proposed a massive cash call comprising a 3-for-2 rights issue of shares and a convertible bond issue to raise a combined S$8.8 billion - fully underwritten by Temasek - as carriers around the world head for a financial crash landing.
In a late announcement on Thursday, the airline said it is proposing a renounceable rights issue of up to 1.77 billion new shares at S$3 per share, on the basis of three rights shares for every two existing shares held by shareholders, to raise S$5.3 billion. The issue price represents a discount of about 53.8 per cent to the last transacted price of the S$6.50 on March 25. It added that the theoretical ex-rights price will be S$4.40.
SIA is also proposing to raise up to S$3.5 billion via a 10-year mandatory convertible bond (MCB) issue on the basis of 295 Rights MCBs for every 100 existing shares owned. The bonds, which come with zero coupon, will be priced at S$1 each.
If not redeemed before the maturity date in 10 years, the MCBs will be converted to new shares based on a conversion price of S$4.84, which is a 10 per cent premium to the ex-rights theoretical price.
In addition, SIA will also be seeking approval to further issue up to S$6.2 billion of additional MCBs on similar terms and to be offered to shareholders via one or more rights issues down the line. This could take place within 15 months of being approved by shareholders.
The national carrier said no underwriter is needed as majority shareholder Temasek - which currently holds a stake of 55.46 per cent - will vote in favour of the rights issues and has committed to subscribe for its full entitlement and any balances of both issuances not taken up. It will not be paid any fee for the undertaking.
In the meantime, the group has arranged a S$4 billion bridging loan facility with DBS Bank to help meet its near-term liquidity needs.
Of the S$8.8 billion in proceeds, SIA plans to use S$3.7 billion for operating cashflow, S$3.3 billion for aircraft purchases and aircraft related payments, and the rest for debt servicing and other payments.
The Covid-19 pandemic has presented an unprecedented crisis for airlines around the world, forcing them to slash capacity, ground aircraft and shed jobs as countries tighten their borders to visitors. The International Air Transport Assocation has estimated that global carriers will need up to US$200 billion in aid from governments to save the aviation industry.
SIA chairman Peter Seah said: "This is an exceptional time for the SIA Group. Since the onset of the Covid-19 outbreak, passenger demand has fallen precipitously amid an unprecedented closure of borders worldwide. We moved quickly to cut capacity and implement cost-cutting measures."
He added: "The Board is confident that this package of new funding will ensure that SIA is equipped with the resources to overcome the current challenges, and be in a position of strength to grow and reinforce our leadership in the aviation sector."
Temasek International chief executive Dilhan Pillay Sandrasegara highlighted: "This transaction will not only tide SIA over a short term financial liquidity challenge, but will position it for growth beyond the pandemic."
He went on to add that Temasek fully supported SIA's ongoing efforts to transform itself, which includes the modernisation of its fleet with the acquisition of new fuel efficient aircraft over the next few years in line with its expansion strategy.
The SIA group is facing its biggest crisis to date, having announced on Monday that it would make sweeping capacity cuts of 96 per cent until end-April. This will see it ground 138 SIA and SilkAir planes out of their combined 147 aircraft while low-cost unit Scoot is suspending almost its entire network.
The airline's senior management is taking salary cuts, led by chief Goh Choon Phong who will see a 30 per cent reduction from April. Pilots, executives and associates will be taking varying days of compulsory no pay leave, while furlough is on the cards for staff on re-employment contracts; other employees are being offered voluntary no pay leave as an option. All in, about 10,000 staff will be affected by the measures. However, the airline highlighted that it is working with various parties to allow staff on no-pay leave to earn income through other avenues.
Shares in SIA were halted from trading on Friday morning pending the release of the announcement.