Hot stock: Singapore Airlines shares fall after S$8.8b cash call unveiled

SINGAPORE Airlines' (SIA) stock price saw some volatility on Friday morning, shortly after the flag carrier proposed issuing bonds as well as new shares at a hefty discount to raise some S$8.8 billion.

The counter plunged as much as 10.1 per cent or S$0.66 to S$5.85 about 10 minutes after the opening bell.

It then rebounded to S$6.31 at around 9.40am, before easing slightly to trade at S$6.29, down S$0.21 or 3.2 per cent from the last close, as at 10.32am on Friday.

About 9.8 million shares of SIA had changed hands by 10.23am, making it one of the most actively traded counters on the Singapore bourse for the morning.

Trading in the stock had resumed on Friday morning, after the trading halt from Thursday morning was lifted.

SIA proposed the massive cash call, to be fully underwritten by Temasek, late on Thursday night.

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It will include a renounceable 3-for-2 rights issue of up to 1.77 billion new shares at S$3 per share, on the basis of three rights shares for every two existing shares held by shareholders, to raise S$5.3 billion.

The issue price represents a discount of about 53.8 per cent to the last transacted price of the S$6.50 on March 25. The theoretical ex-rights price will be S$4.40, SIA said.

The flag carrier will seek approval from shareholders on the new share sale.

It is also looking to raise up to S$3.5 billion via a 10-year mandatory convertible bond (MCB) issue on the basis of 295 Rights MCBs for every 100 existing shares owned. The bonds, which come with zero coupon, will be priced at S$1 each.

SIA chairman Peter Seah said on Thursday: "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."

He added: "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."

Temasek International chief executive Dilhan Pillay Sandrasegara highlighted: "This transaction will not only tide SIA over a short term financial liquidity challenge, but will position it for growth beyond the pandemic."

He went on to add that Temasek fully supported SIA's ongoing efforts to transform itself, which includes the modernisation of its fleet with the acquisition of new fuel efficient aircraft over the next few years in line with its expansion strategy.

The proposed rights issue comes about a week after OCBC Credit Research said it expects SIA to require external funding soon, likely from either its banking relationships or major shareholders. Temasek Holdings owns a stake of about 55 per cent in the SIA group, while the remaining shareholding is dispersed.

Separately on Thursday afternoon, the Singapore government rolled out an enhanced support package and 75 per cent wage offsets for the aviation sector. The measures, as part of the new Resilience Budget, are meant to help prevent the collapse of the sector amid the coronavirus crisis.

The SIA group is facing its biggest crisis to date, having announced on Monday that it would make sweeping capacity cuts of 96 per cent until end-April.

This will see it ground 138 SIA and SilkAir planes out of their combined 147 aircraft while low-cost unit Scoot is suspending almost its entire network.

The airline's senior management is taking salary cuts, led by chief Goh Choon Phong who will see a 30 per cent reduction from April.

Pilots, executives and associates will be taking varying days of compulsory no pay leave, while furlough is on the cards for staff on re-employment contracts; other employees are being offered voluntary no pay leave as an option.

All in, about 10,000 staff will be affected by the measures. However, the airline highlighted that it is working with various parties to allow staff on no-pay leave to earn income through other avenues.