SINGAPORE (Mar 26): Singapore Airlines (SIA) has announced it is undertaking a renounceable rights issue of new shares in the company and mandatory convertible bonds (MCB) to raise up to $15 billion. Coming just a minute before midnight on March 26, the timing of the announcement could not be more symbolic.

In some ways, the move could be seen as a last-ditch effort to rescue SIA from crumbling, amid the Covid-19 pandemic that has led to the near-cessation of international air travel.

SIA this week slashed its scheduled capacity by 96%, grounding all but nine of the 147 SIA and SilkAir aircraft. Meanwhile, only two of the 49 aircraft under the group’s low-cost carrier Scoot will remain in the air.

So far this year, shares in SIA have tumbled 28.6% to close at $6.50 on March 25, amid what the group has called “the greatest challenge…in its existence”.

“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.

The rescue bid will see SIA issue some 1.78 billion new rights shares at $3.00 each, representing a 53.8% discount to its last transacted price and a 31.8% discount to the theoretical ex-rights price (TERP) of $4.40 per share.

Shareholders will be eligible for three rights shares for every two existing shares they own in SIA.

The rights issue will see SIA rake in gross proceeds of around $5.3 billion.

SIA will also issue $3.5 billion worth of 10-year rights MCB, at a denomination of $1 each on the basis of 295 MCB for every 100 existing shares held.

Temasek Holdings, SIA’s largest shareholder with a 55.46% stake, says it will vote in favour of the resolutions and procure a subscription for its full entitlement and the remaining balance of both issuances.

“The impact of Covid-19 on the global travel industry is unprecedented, especially for airlines and the related sector players,” says Dilhan Pillay Sandrasegara, CEO of Temasek International.

“SIA has been seeing strong growth before the hit from the pandemic,” he notes. “This transaction will not only tide SIA over a short term financial liquidity challenge, but will position it for growth beyond the pandemic.”

SIA intends to use the proceeds of these rights issuances, which comes up to $8.8 billion, to fund capital and operational expenditure requirements.

Some $3.7 billion will go towards the funding of fixed costs and other operating expenses incurred during this period of reduced operations and the subsequent recovery period, while $3.3 billion will be used for aircraft purchases and aircraft-related payments.

The remaining $1.8 billion will be for other fixed commitments, including to service its debts and other contractual payments.

Both rights issuances are subject to shareholder approval at an extraordinary general meeting (EGM) that will be held in due course.

At the same EGM, SIA will also seek the approval of shareholders for the further issuance of up to $6.2 billion worth of additional mandatory convertible bonds.

In addition, SIA has also arranged a $4 billion bridge loan facility with DBS Bank to support the company’s near-term liquidity requirements. DBS, a fellow Temasek-linked company, has also been appointed as the sole financial adviser and lead manager of the rights issue.

“The strong commitment and support from our staff and our unions as we work together on measures to tackle this crisis have been remarkable,” says SIA’s Seah. “We are especially grateful for Temasek’s strong vote of confidence.”

“The Board is confident that this package of new funding will ensure that SIA is equipped with the resources to overcome the current challenges, and be in a position of strength to grow and reinforce our leadership in the aviation sector,” he adds.

In a Ministerial Statement on March 26 unveiling Singapore’s second stimulus package – dubbed the Resilience Budget – to help mitigate the impact of the Covid-19 outbreak, Deputy Prime Minister and Finance Minister Heng Swee Keat pointed out that the aviation sector has significant linkages to the rest of the country’s economy.

The aviation sector is seen as a key pillar of Singapore’s economy, supporting more than 12% of the country’s GDP and 375,000 jobs.

“If it collapses in a crisis, it will be very hard for the aviation industries to rebuild after the crisis is over, and the recovery of the rest of the economy will be impeded,” Heng says. “I welcome Temasek’s decision to lend support to SIA. SIA is an outstanding airline and a strategic asset for Singapore.”

Under the $350 million Enhanced Aviation Support Package unveiled Thursday, SIA 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 six-month waiver will span from Oct 1 until March 31, 2021.

To help businesses in the aviation sector retain their local workers, the government is also spending more than $400 million in an enhanced Jobs Support Scheme. This will see aviation firms receive a total of 75% wage offset for every local worker in employment, for the first $4,600 of monthly wages.