The effect of Covid-19 on the global economy is unprecedented. Entire economies have ground to a standstill and many companies are in the fight for survival.
Hardest hit is the aviation industry. Legacy carriers such as Cathay Pacific, Emirates and Qantas have grounded planes and furloughed staff. Airlines all around the world are in hibernation mode, hunkering down for the cold winter hoping to emerge stronger when the virus clears and the new Spring arrives.
Our National Carrier is not spared. Hampered by the lack of a domestic routes, SIA is dependent on passenger traffic passing through Singapore as a transit hub. With countries closing imposing border controls, it has seen its passenger numbers dwindle to a trickle.
Immediate measures have been taken to reduce operating costs. This includes cutting 96% of their flights and instituting compulsory no pay leave and pay cuts across the board.
Even so, cash reserves are not sufficient. It has been speculated that SIA will need to raise cash, and raise very soon, to remain afloat. After a one day trading halt, Singapore Airlines (SIA) announced yesterday evening that it will indeed be raising funds to tide it over this critical period. Ā
The exercise has two basic components ā A Renounceable Rights issue and a Mandatory Convertible Bonds issue (MCB) to entitled shareholders.
The following is summary of what you should know, laid out in simple English or refer to this post for a typical sequence of events during a renounceable rights issue exercise:
Renounceable rights issue
1)For existing shareholders:
- For every 2 SIA shares that you own, you can subscribe to 3 new shares at $3 per share
- The rights subscription period has yet to be finalised
- A new rights counter will be created and will trade on SGX. You are able to sell the right to other investors during rights trading period (trading period is also yet to be finalised)
2)For non-shareholders: If you would like to participate, you can
- Buy SIA shares now and subscribe to the rights.
- Purchase the rights directly from other investors during the rights trading period
Mandatory Convertible Bonds (MCB)
1)For existing shareholders:
- For
every 100 SIA shares that you own, you can subscribe to 295 MCB
- The MCB is a 10-year zero coupon bond with a mandatory conversion to SIA shares at the end of 10th year
- Conversion calculation: every $1,000 invested will be converted to approximate 373 shares at the 10th year (Accreted Principal Amount of $1,806.11 at conversion price $4.84, do note that this is subject to changes)
- SIA has the right to redeem the bond every 6 months based on the redemption price table in the announcement.
- You may sell the MCB right to other investors during right trading period (yet to be finalised)
2)For non-shareholders:
- You
may buy SIA shares now and subscribe to the MCB rights if you want to
participate in MCB rights issue
- You could also buy the MCB rights from other investors during rights trading period.
You will be able to subscribe to both the rights and the MCB via ATM machines.
All the rights are fully underwritten by Temasek. Temasek will subscribe to all the rights if they are not taken up by investors
Read the full announcement here.
What this really means for the retail investor.
1. SIA is safe ā for now.
They have raised at least six months (potentially more with more cost cutting measures coming in) of operating expenses and have opened a credit line with DBS for $4B. Temasek has thrown its weight behind the carrier.
2. How much is SIA really worth?
If you are a retail investor who has entered a position into SIA in the recent weeks, your stake is being diluted right now.
You need to subscribe for all the rights to if you donāt want your holdings to be diluted.
The Theoretical Ex Rights Price (TERP) has been determined to be $4.40 per share. SIA today is trading in the $6 range.
You should expect the share price to go down after the rights are issued.
3. How much is SIA really really worth?
Price is what you pay, value is what you get. In this very unusual time, traditional valuation methods are of little use. The biggest determinant of the true value of SIA will be how long before they get all their planes up and flying again.
If COVID-19 clears up in a couple of months and it is back to Ops Normal in the summer, SIA shares will be worth a lot more than $4.40. If the situation does not improve, this will not be the only fund raising exercise they would have to conduct.
My personal views
I have no position in SIA shares and do not intend to accumulate SIA shares. If you are holding SIA shares, you can either sell your shares if you do not want to participate in any of the rights.
If you plan to hold, you should subscribe to the rights or sell the rights. This will prevent your holdings from being diluted.
In my opinion, the recovery of SIA share price may take a much longer time.
But if you are one for the country, subscribing for the rights and the bonds are beyond monetary return.
Please note that this is purely based on my personal views, you should do your own due diligence and thinking before making any investment decision.
https://en.m.wikipedia.org/wiki/Furlough
Thanks š
I am not a SIA shareholder. If I buy SIA share now, am I entitled for right issue etc. If so, when will be last day to buy for right issue. Can I buy the share from the Central Depository Pte Ltd
Thanks
Have to wait for future announcements for the dates.
Hi Alvin,
I got 5000 SIA shares, but if i dont want to participate the rights.
Is there any issue?
What should i do now?
If you dont want the rights you can sell them when they are listed. You can get some cash while you keep your SIA shares.
Will the news share issue affect the existing SIA bond holders? And new MCB – will it affect existing SIA bonds previously issued?
Yes, probably the market has already priced in the impact. The rights once exercised would increase the number of shares. The value per share will decline as a result and share price likewise. As for bonds, the liabilities will go up. Bonds have covenants that may cap the borrowing.
If my SIA holdings is under CPF/OA, must I use CPF/OA fund to purchase its Rights & Bonds? Can I use cash instead?
Hi, if I have 5000 SIA shares but only have enough spare cash to purchase half the rights shares Iām allocated (2500x3x$3). Is it still possible to sell the rights to the other half of the rights shares?
Yes. you can sell part of your rights.
I am overseas in Malaysia n is under quarantine due to covid 19, how do i subscribe to the rights issue for my SIA shares in both CPF and CDP?
Take note of the timeline:
Commencement of trading of Rights : Wednesday, 13 May 2020 from 9.00 a.m.
Last date and time for splitting and trading of Rights: Thursday, 21 May 2020 at 5.00p.m.
Last date and time for acceptance of and payment for Rights Shares and/or Rights MCBs and/or applications for excess Rights Shares and/or excess
Rights MCBs: Thursday, 28 May 2020 at 5.00p.m.
So if you cannot make it back in time, you might want to give CDP a call or check with your broker.
Refer to the document for more details about the rights: https://links.sgx.com/FileOpen/EGM%20Results%20and%20Indicative%20Timetable.ashx?App=Announcement&FileID=608970
Hi Alvin,
Are the Convertuble Bonds listed in SGX ? To be clear , i am not refering to the Rights but the CB itself.
If yes, do youbhave the listing date ?
Yes. MCB rights are renounceable and hence traded on SGX. “SIA MCB R” is the name of the MCB rights. Ticker: GANR
Trades from Wednesday, 13 May 2020 from 9.00 a.m.
hi Alvin,
need your kind advice.
i purchase SIA (cash upfront) thru vickers on 4 May, my CDP acct state (incoming purchase-held) effective date 6 May.
Am i still eligible for subcribe to the rights?
Thanks in advance
Yes. you should get the rights. you can confirm with your broker.
Thanks Alvin.
Hi Alvin,
I want to sell my MCB right, but where can I find out how many MCB right I have?
thanks
You can check your CDP account or with your broker if the shares are custodised with your broker.
You should also receive a letter to indicate the number of rights you have.
thanks Alvin, u have a nice day !
O am shareholders of SIA, buying the RIGHTS or MCB RIGHTS make more money sense?
Thanks
How and which platform I can exercise my SIA new share right ? (My existing SIA share is with SGX )
You can’t hold your shares with SGX. Either with CDP or a broker. You can wait for the letter on the instructions to exercise your rights.
Tks for replied Alvin
HI Alvin,
I have SIA shares in CPF, how do I exercise my rights?
follow the instructions in the letter from your agent bank.
Hi Alvin,
Do i sell the rights via ATM? Will the atm show the value of the rights also?
thank you
You have to sell your rights using your brokerage platform, not the ATM.