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Singapore Airlines (SIA) Rights Shares and MCBs Issues – How To Make Sense Of Them

Alvin Chow
Alvin Chow

The Singapore Airlines (SIA) (SGX:C6L) rights issue is a complicated one and I bet most shareholders don’t know what is going on.

I always believe that financial products are not shampoos and education is the only way to bridge the knowledge gap.

I took the liberty to record a walkthrough of the rights issue document and highlight the salient points for SIA shareholders to take note of.

If you are not a video person, you can read the following main points accompanied with some explanations.

SIA is offering 2 different rights issues to raise money.

  1. Rights shares
  2. Rights Mandatory Convertible Bonds (MCBs)

Rights Shares

Rights Shares Issue: SIA is issuing more shares to raise money. Only shareholders will receive the rights to buy more shares. The cutoff date for the shareholder list is on 5 May 2020, 5pm. Thereafter, you won’t be able to receive the rights shares even if you buy SIA shares. For every 2 shares you have, you will get 3 rights shares. You don’t need to pay for the rights. They would be automatically deposited into your CDP or custodian accounts.

Renounceable rights: The rights shares are tradable on SGX. You can buy and sell them like a normal stock. If you don’t want to exercise the rights, you should sell them off. If you want to buy more shares you can also buy more rights and exercise them later. The rights shares will start trading from 13 May 2020, 9am till 21 May 2020, 5pm. The name of the rights shares will be “SIA R” with the symbol “LRDR”.

Issue Price at $3: This means that you need to pay $3 per rights share in order to convert the rights into shares. The exercise deadline is on 28 May 2020, 5pm. If you hold the shares in a custodian account, your broker may set a deadline earlier than 28 May. So take note of the timing. You have to pay for the rights via ATM if you hold the rights in CDP and transfer the money to your brokerage account if the rights are held under custody.

Theoretical Ex-rights Price (TERP) of S$4.40: SIA share price was around $6+ before the rights shares issue. As the new shares are issued at S$3, you can expect SIA share price to trade lower to around S$4.40 after the rights are issued. But the market may not trade according to this theoretical price.

Rights MCBs

Rights MCBs Issue: Besides the rights shares issue, SIA is also issuing rights MCBs to raise more cash. I suspect the reason for issuing MCBs is because there would be too much dilution if it is a pure rights shares issue and SIA share price will have to trade much lower. Thus to be clear, these are bonds and not shares.

Only shareholders will receive the rights to buy these bonds. The cutoff date for the shareholder list is on 5 May 2020, 5pm. Thereafter, you won’t be able to receive the rights MCBs even if you buy SIA shares. You will receive 295 rights MCBs for every 100 SIA shares you own. You don’t need to pay for the rights. They would be automatically deposited into your CDP or custodian accounts.

Renounceable rights: The rights MCBs are tradable on SGX. You can buy and sell like them like a normal stock. If you don’t want to exercise the rights, you should sell them off. If you want to buy more bonds you can also buy more rights and exercise them later. The rights MCBs will start trading from 13 May 2020, 9am till 21 May 2020, 5pm. The name of the rights MCBs will be “SIA MCB R” with the symbol “GANR”.

Issue Price at $1: This means that you need to pay $1 per rights MCB in order to convert the rights into bonds. The exercise deadline is on 28 May 2020, 5pm. If you hold the shares in a custodian account, your broker may set a deadline earlier than 28 May. So take note of the timing. You have to pay for the rights via ATM if you hold the rights in CDP and transfer the money to your brokerage account if the rights are held under custody.

Zero-coupon: The MCBs are zero-coupon bonds which means you will not receive interest payments. Instead, you will receive a maturity amount that is higher than the principal you have put in. The maturity amount is equivalent to S$1,806.11 based on $1,000 principal. Or every $1 you put in, you get $1.81 at the end of 10 years.

Mandatory Conversion: As the name emphasised mandatory conversion, this means that the bonds will be converted to SIA shares upon maturity. There will be no cash paid to you.

Callable: The MCBs are also redeemable by SIA before maturity. They can have the option to redeem once every 6 months. Your yield will range between 4% and 6% depending on the year of redemption. The closer to the maturity, the higher the yield.

SIA Rights Issues FAQ

Q: How soon will I see the rights in my CDP / custodian account?

Not sure. But definitely before 13 May 2020 because the rights will start trading.

Q: What prices should the rights shares and rights MCBs trade at?

Price of the Rights Shares should trade close to SIA share price – $3.

Price of the Rights MCBs should trade close to $0.

Q: I will have odd lots of Rights Shares and Rights MCBs, how do I sell them?

There are two more counters, SIA R1 (symbol:HTFR) and SIA MCB R1 (symbol:8YJR), where you can sell your odd lots. Ask your broker if you can amalgamate the orders for the R and R1 so that you only pay commission once.

Q: If my SIA shares are held under CPFIS, must I buy the Rights & MCBs using my CPF fund? If I decided to sell the Rights, will the proceeds go back to CPF or cash?

Yes, you can use CPF to fund the rights purchase, provided your CPF limit allows.

If you sell the rights, the monies will go back to your CPF.

Q: I have SIA shares which I have bought using cash, would I be able to exercise them with CPFIS instead of cash?

No. You have to use cash.

Q: I have SIA shares in my SRS account, what do I need to do?

Your agent bank which holds your shares in custody should inform you about your rights shares and MCBs. You have to follow their instructions to exercise them. Otherwise, you should sell the rights.

Q: How are our shares diluted if we don’t subscribe to the rights shares?

Your % ownership of SIA will reduce. Assuming you have 1m shares. And you didn’t buy more but the number of shares will increase anyway. So your % stake can drop from 0.08% to 0.03%.

Q: If i do not own any SIA share can i buy the rights shares?And how do these rights shares work after I buy them?

Yes, you can buy the rights shares even if you do not have SIA shares. After you buy the rights shares, you still have to pay to convert the rights to shares. Don’t buy if you have no intention to exercise the rights, because the rights will expire.

Q: Do we need to pay $4.84 for a MCB in order to convert it to a SIA share in 10 years’ time?

No need to pay. They will just give you the shares in exchange for the bonds.

Conclusion

We hope that we have simplified these rights issues to you. You have to understand this and decide what to do if you are a shareholder. Either sell the rights or exercise them. Don’t let the rights expire worthless!

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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562 thoughts on “Singapore Airlines (SIA) Rights Shares and MCBs Issues – How To Make Sense Of Them”

  1. Hi Alvin,
    If I had bought an additional 1,300 Rights before 21May, and exercised them before 28May, would I be guaranteed the Rights Shares when these are issued on 08 Jun ? I suppose they are not considered as ‘Excess Rights’ which may be rejected due to over subscription ? Thanks.

    Reply
  2. Hi. I am currently not a shareholder of SIA. However i paid for the rights issue. Do i get refunded since I was never eligible for the rights issue.

    Reply
  3. Hi, I am SIA share holder, and I Intended to buy extra rights and MCBs, , if I couldn’t get the extra how long will it take to refund me. Please advise thank you.

    Reply
  4. Hi Alvin,
    I’m SIA share holder just purchased some shares at the price of 3.69 last week.
    As per SIA announcement 23July2020
    SIA retains the option to raise $6.2 Billion in additional MCBs
    I would like to know will this additional MCBs comprise both :
    1) Rights Issue ?
    and
    2) M convertible Bonds ?

    Looking forward for your guidance.
    Thank you

    Warm regards
    Siaw Ling Goh

    Reply
      • Hi Alvin
        Thanks for prompt reply
        Will this new MCBs impact on the SIA price going forward ?
        Please advice
        Thank you
        Regards
        Siaw Ling Goh

        Reply
        • The MCBs should not have impact to the share price but the act of having to raise another round would. It means that SIA still needs more money and the underlying performance has not improved by much.

          Reply
          • Hi Alvin,
            Noted regards the additional MCBs
            Quite a wrong timing for me to have bought @6.90 just a week before the bad results of the Company financial announcement.
            I’m thinking of buying more shares to average down my cost.
            As prices continue to drop,
            should I wait for the additional MCBs fund raising become official hoping price would weaken further by then
            Looking forward to your advice .

            Thank you
            Siaw Ling Goh

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