SIA's shareholders greenlights $15b fundraising

Shareholders in favour of raising two resolutions.

Singapore Airlines' (SIA) shareholders approved the carrier to raise up to $15b during a virtual extraordinary general meeting (EGM).

A total of 99.79% of votes were in favour of resolution one, which raises $8.8b through a 3-for-2 rights issue of shares and a convertible bond issue, whilst 99.66% of the votes were in favour of resolution two, allowing the airline to issue up to $6.2b of additional MCBs on similar terms and to be offered to shareholders via one or more rights issues down the line.

SIA intends to utilise the 38% amounting to $3.3b of the net proceeds from the $8.8b rights issue for aircraft purchases and aircraft related payments. Meanwhile, 42% of the rights issue amounting to $3.7b will be allotted to operating cash flow to fund fixed costs and other operating expenses incurred whilst $1.8b or 20% will be used for debt service and other contractual payments.

The airline will carry out a rights issue of up to 1.77b new shares at $3 apiece, representing a discount of approximately 53.8% to the last transacted price of $6.50 on 25 March, and an approximate 31.8% discount to the theoretical ex-rights price (TERP) of $4.40 per share.

In addition, SIA will raise up to $3.5b via a 10-year mandatory convertible bond (MCB) issue on the basis of 295 Rights MCBs for every 100 existing shares owned. The bonds with zero coupon will be priced at $1 each.

On another note, the airlines have cut 96% of scheduled capacity up to the end of June to contain costs and conserve cash against the collapse in travel demand. The senior management has also taken pay cuts whilst unions have agreed to cost-cutting measures in addition to a hiring freeze and voluntary no-pay leaves. The airlines also deferred non-essential expenditure projects and imposed tight controls on discretionary expenditure.

The group admits it is now in an over-hedged position with respect to fuel consumption based on the scale of capacity cuts. Surplus hedges will be marked to market from 31 March, a date on which the Brent oil price was close to its 10-year low, and are expected to result in substantial losses.

SIA expects to maintain fuel hedging policy to mitigate the impact of volatility in fuel prices. The airlines has also set up an internal task force to ensure that its services are ready should air travel eventually recover.