SINGAPORE (March 27): Singapore Airlines, facing unprecedented stress from the Covid-19 outbreak, plans to tap shareholders and investors to raise up to $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. Shareholders who hold two existing SIA shares are entitled to subscribe to three new SIA shares at $3 each. 

The offer price of $3 per rights share is a 53.8% discount off SIA’s last traded price of $6.50 before trading halt was called before the market opened on March 26.

SIA will also raise up to another $9.7 billion from a 10-year Mandatory Convertible Bonds (MCB). The convertible bonds will be raised via an initial tranche of $3.5 billion and followed by subsequent tranches of $6.2 billion.

SIA’s largest shareholder Temasek Holdings, which owns more than 55% of the airline, will vote in favour of the resolutions and subscribe for its full entitlement. Temasek will also take up the rights that other smaller shareholders don’t want.

In addition, SIA has also 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 fundraising will be subjected to shareholders’ approval at an EGM to be held.

“This is an exceptional time for the SIA Group,” says SIA chairman Peter Seah. “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 adds.

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 from other virus-inflicted countries. 

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 in the afternoon of 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 Holdings, 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.

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.