Singapore Airlines (SIA) - Phillip Securities 2020-04-06: Rights Shares And Mandatory Convertible Bonds


Singapore Airlines (SIA) - Rights Shares And Mandatory Convertible Bonds

  • Temasek Holdings (Private) Limited has underwritten a capital raising exercise to tide Singapore Airlines (SGX:C6L) through the COVID-19 pandemic. This will be done through a rights issue of ordinary shares of Singapore Airlines (Rights Shares) and a rights issue of mandatory convertible bonds (Rights MCBs), raising a gross S$8.8bn.

Summary of the deal

Type of issue Shares (mn) Value (S$mn) Per Share Rights Entitlement
Existing 1,185 6,519 5.50
New issues 1,778 5,333 3.00 3 for 2
TERP 2,963 11,852 4.00
Right MCB 723 3,500 4.84 295:100
3,686 15,352 4.16
Additional MCB n.a. 6,200 n.a.
  • Source: Company PSR; TERP = theoretical ex-rights price, MCB = mandatory convertible bonds

Part 1: Rights issue of ordinary shares will raise S$5.3bn

  • Up to 1.777bn Rights Shares will be issued at an issue price of S$3.00 for each Rights Share on the basis of three 3 Rights Shares for every two 2 existing ordinary shares of Singapore Airlines.
  • The Rights Shares represents a discount of approximately 45.5% to the Singapore Airlines’s last traded price of S$5.50 on 3 April 2020 and a discount of approximately 25% to the theoretical ex-rights price (TERP) of S$4.00 per Share.
  • Below is an example of a shareholder with 1,000 existing Singapore Airlines shares:

Every 1000 SIA shares held, the shareholder will need to fork out ….

Current: 1,000 shares @ S$5.50 S$5,500
To subscribe for the rights:
Rights Shares: 1,500 shares @ S$3.00 S$4,500
Rights MCB: 295:100 S$2,950
Total additional cash investment needed to prevent dilution S$7,450

  • Rights Shares rights can be sold in the open market if investors do not wish to exercise them.

Part 2: Rights issue of mandatory convertible bonds will raise S$3.5bn

  • 295 Rights MCBs will be issued for every 100 existing ordinary shares to raise up to S$3.5bn. In other words, an existing shareholder with 1,000 Singapore Airlines shares can purchase S$2,950 worth of MCBs.
  • See attached PDF report for redemption schedule of the MCBs.

The MCB is a zero-coupon bond converted into SIA shares at maturity or redemption by SIA.

  • There will be no coupon interest paid. At the maturity date of 10 years, Singapore Airlines will mandatorily convert all MCBs into shares. The number of Shares to be delivered to bondholders in respect of its holding of Rights MCBs will be determined by dividing the Accreted Principal Amount of the Rights MCBs held by such Bondholder as at the Maturity Date by the Conversion Price of S$4.84, which is at a premium of 21% to the TERP of S$4.00 per Share.

Bondholders will receive 373 shares for every S$1,000 invested in Rights MCBs today.

  • At the maturity date, the Accreted Principal Amount will be S$1,806.11 for each S$1,000 invested in the Rights MCB. This means, if an investor invests S$1,000 in MCBs today, the MCB value will be S$1,806.11 at maturity date and the investor will receive S$1,806.11 / S$4.84 = 373 new Singapore Airlines shares.

MCBs can be redeemed early at SIA’s discretion.

  • The Rights MCBs may be redeemable at the option of Singapore Airlines in whole or in part on every six-month anniversary of the issue date at the relevant Accreted Principal Amount as at such semi-annual Date. The Redemption Price set out below has been calculated on the basis that the annual yield to call for the first 4 years from the date of issue of the Rights MCBs is 4% per annum, and the subsequent 3 years is 5% per annum and the subsequent 3 years is 6% per annum, compounded on a semi-annual basis.
  • For example, if a bondholder invested S$1,000 in Rights MCB and Singapore Airlines redeems the whole amount early on the 4th Semi-Annual Date, the redemption price will be S$1,082.43 (108.243% x S$1,000) and the bondholder will receive 223 (S$1,082.43 / S$4.84) new Singapore Airlines shares, representing an annual compounded return of 4%.

Investors risk loss if SIA share price falls below the conversion price of S$4.84.

  • If SIA share price share price falls below S$4.84 when the MCBs are redeemed, a loss will be incurred from paying a higher price to receive the new Singapore Airlines shares at the redemption or maturity date.

The Rights MCBs are intended to be tradable on the active market.

  • Investors may liquidate their Rights MCBs if they do not which to exercise them. They will also be able to liquidate MCBs that they have subscribed for by selling on the active market.

Part 3: SIA may issue S$6.2bn additional MCBs in the next 15 months

  • There may be a further issuance of up to approximately S$6.2bn aggregate principal amount of additional mandatory convertible bonds (the Additional MCBs) within 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM.

Proceeds to help with cash flow

Timothy Ang Phillip Securities Research | https://www.stocksbnb.com/ 2020-04-06
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998