Singapore Airlines (SIA) has responded to an open letter by Securities Investors Association (Singapore) (SIAS) on May 27 ahead of SIA’s proposed renounceable rights issue of up to $6.2 billion in aggregate principal amount of mandatory convertible bonds (MCBs).
See: SIAS questions SIA on mandatory convertible bonds issuance and whether it has privatisation plans
In a filing to SGX on June 1, SIA provided a written response to the questions raised by SIAS related to the MCB issuance, SIA’s strategy and outlook, and its financials.
In response to SIAS’ question on whether SIA is considering privatisation and/or delisting, the group says that privatisation is a shareholder action, with SIA “not in a position to comment”.
Commenting on SIAS’ question on how critical the issuance of the MCBs are in the medium to long term, SIA said it was a “prudent approach” that addressed the crisis on hand given the continued impact on passenger traffic caused by Covid-19 as well as the need to invest for the future.
SIA also highlighted that its decision to proceed with the additional MCBs at this juncture is in view of the “uncertain recovery trajectory”.
The group reiterated that the MCBs are not immediately dilutive and will provide SIA with the flexibility to manage its capital structure, with partial or full redemption allowed on every six-month anniversary of the issue date at the Company’s discretion.
"Temasek’s undertaking to subscribe for its pro-rata entitlement and any remaining balance of this issuance provides certainty of funding through the issuance of the [MCBs]," SIA added.
On SIAS’ questions regarding the allocation of the proceeds from the additional MCBs and how long it will last given SIA’s current cash burn, SIA noted that the proceeds will be used to fund fixed costs and other operating expenses, aircraft and aircraft related payments, investments in digital capabilities, and debt service and other contractual payments.
It also highlighted that its operating cash burn “has improved” during the course of FY2020-FY2021 ended March, going from a monthly cash burn of around $350 million to $100-150 million. To that end, the group is able to reduce the amount of allocation required for operating purposes and instead funnel more allocation towards capital expenditure and debt servicing requirements. SIA expected the proceeds to last “well into FY2022-FY2023”.
SIAS had also inquired on how this round of MCBs will differ from the previous round of MCBs that saw what it deemed as a “tepid” response, with shareholder Temasek Holdings taking up a majority of the MCBs issued.
In response, SIA noted ”strong shareholder support” for the additional MCBs at the July 2020 extraordinary general meeting (EGM), with 99.76% of shareholders approving the resolution to issue the additional MCBs before the following year’s AGM in July.
On the subject of whether SIA has considered an "asset-light" strategy, SIA stated that it has traditionally had a mix of both owned and leased aircraft, which provides flexibility on operations, cost and aircraft residual value risk management. While SIA has raised $2 billion from aircraft sale and leaseback transactions since April 2020 and will continue evaluating similar opportunities, the group pointed out that leased aircraft are held on the balance sheet as right-of-use (ROU) assets and thus do not contribute to an asset-light strategy
As at 9.56am, shares in SIA are down 2 cents or 0.4% lower at $4.96.
