SINGAPORE (Mar 27): Singapore Airlines (SIA), facing unprecedented stress from the Covid-19 outbreak, plans to tap shareholders to raise $15 billion so that it can stay aloft, the company announced just before midnight on March 26.

The flag carrier plans to offer all shareholders the chance to subscribe for $5.3 billion in new shares.

SIA plans to offer a three-for-two rights issue at $3 per share, which is a 53.8% discount off SIA’s last traded price of $6.50. It will also raise up to another $9.7 billion from a 10-year Mandatory Convertible Bonds (MCB). Both will be offered on a pro-rata basis via a rights issue, and both issuances will be treated as equity in the company’s balance sheet.

SIA’s largest shareholder, Temasek Holdings, which owns more than 55% of the airline, will vote in favour of the resolutions and procure a subscription for its full entitlement and the remaining balance of both issuances.

In addition, SIA has arranged a $4 billion bridge loan facility with fellow Temasek-linked company, DBS Bank, which will go towards the airline’s near-term liquidity requirements. The fund-raising will be subject to shareholders’ approval at an EGM to be held.

“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,” says SIA chairman Peter Seah.

With the Covid-19 outbreak worsening rapidly, the airline on March 23 announced that it has grounded 96% of its fleet. Remaining flights, largely empty, are those flying Singaporeans back from overseas.

Temasek International CEO, Dilhan Pillay Sandrasegara, notes that SIA was enjoying strong growth before Covid-19 struck. “It has also committed to fleet renewal as part of its transformation journey. This transaction will not only tide SIA over a short term financial liquidity challenge, but will position it for growth beyond the pandemic,” he says.

“We fully support SIA’s plans to transform itself.

This includes the modernisation of its fleet. The delivery of a new generation aircraft over the next few years will provide better fuel efficiencies as well as meet its capacity expansion strategy,” adds Sandrasegara.

This Temasek-led rescue of SIA was disclosed earlier on March 26, when Deputy Prime Minister Heng Swee Keat announced the supplementary package worth $48.4 billion to help deal with the Covid-19 outbreak.

During his speech when the market was still trading, Heng said that SIA, with the backing of Temasek, which owns more than 55% of the airline, will be undertaking a “corporate action”.

While Heng did not provide further details in his speech, the good news is evident. As SIA shares were halted before market opened on March 26, investors piled in on SIA Engineering, the separately-listed subsidiary, instead. It gained 21 cents, or 12.57%, to close at $1.88 on March 26.

However, that’s little comfort to shareholders who have seen shares of both companies getting hammered in the drastic sell-down over the past few weeks. SIA, for one, last traded at $6.50, and is down 28.6% year to date. SIA Engineering, on the other hand, is down 33.8% over the same period.

Similarly, many airlines around the world have responded with drastic steps. In Europe, Ryanair and Lufthansa have already cut 100% and 95% of their capacity. Gulf giants Emirates and Etihad Airways said they would stop flying passengers for two weeks from March 25 owing to local restrictions. AirAsia announced that it is “temporarily hibernating” most of its fleet across the network. And Jetstar Asia suspended its flight services this week.

Heng warns that some airlines may not survive the crisis. Moody’s Investor Service says while weaker airlines may be pushed to default, it does not expect even the strongest companies to emerge unscathed.

This is notwithstanding the fact that many of its rated airline companies entered the crisis with reasonably strong liquidity buffers.

The key challenge facing SIA now is a liquidity crunch. As at Dec 31, 2019, the company has total borrowings of $7.7 billion, comprising bank borrowings and bonds. The company has a bond issuance of $500 million with a coupon rate of 3.22% that will mature on July 9. The company also has salaries and other fixed costs to pay. Yet the company has cash and cash equivalents of only $1.6 billion.

Under the Enhanced Jobs Support Scheme, SIA will receive grants covering 75% of the gross monthly wages of each Singapore citizen and permanent resident employee. This is subject to a monthly wage cap of $4,600.

Under the Enhanced Aviation Support Package worth $350 million, SIA stands to receive certain rebates. For one, it will receive a 10% landing charge rebate for all scheduled passenger flights landing in Singapore. The company will also receive a 50% rebate on retail paid for airline lounges and offices within Changi Airport’s terminal buildings. Both these rebates will be applicable from April 1 until Oct 31.

Furthermore, SIA will receive a 100% rebate on parking charges at Changi Airport from Aug 1 until Oct 31.

This is an extension of a similar rebate provided in the Stabilisation and Support Package (SSP) announced in February, which is up till July 31. In addition, the company will receive an additional six-month waiver of the planned 1% annual increase in landing, parking and aerobridge charges for all flights. The first six-month waiver is scheduled to take effect from April 1 until Sept 30 as announced under the SSP. The second sixmonth waiver will span from Oct 1 until March 31, 2021.

Singapore is not the only country to provide aid to its aviation industry. Australia announced an A$715 million ($618 million) aid package comprising refunds and forward waivers on fuel taxes, and domestic air navigation and regional aviation security charges.

New Zealand’s government will open a NZ$900 million ($763 million) loan facility to the national carrier, as well as an additional NZ$600 million relief package for the aviation sector specially to ensure continuity in air freight capacity.