• SIA will undertake a rights issue, raising SGD 8.8 billion using a combination of new ordinary shares and mandatory convertible bonds (MCB).
• Investors who wish to exercise their rights must do so during the exercise period, which is between 13 May 2020 and 28 May 2020.
• For the MCBs, instead of a cash pay-out, bondholders will receive an equivalent amount of SIA shares based on the conversion price when the MCB matures.
• For investors who do not wish to exercise their rights, we recommend that they sell them in the secondary market during the designated trading period.
Overview of the SIA rights issue
On 30 April 2020, shareholders of Singapore Airlines (SIA) voted in favour of a fundraising package that will would allow the company to raise up to SGD 15 billion through a rights issue. Of the total sum, SIA plans to raise SGD 8.8 billion immediately using a combination of ordinary shares and mandatory convertible bonds (MCB). It also has the option to issue up to SGD 6.2 billion of additional MCB in the future.
The current rights issue of SGD 8.8 billion consists of two separate parts: a rights issue for new ordinary shares and a rights issue for MCB. As such, shareholders who have received the rights will have the option of exercising either one of the rights, both of them or none at all.
Investors will only receive the rights if they are holding SIA shares by the cut-off date of 5 May 2020. Those who qualify for the rights will not be required to pay for them, unless they choose to exercise the rights. The details for both issues can be found in the tables below.
Table 1: Key terms – rights issue for new ordinary shares
|
Issue Size |
Up to approximately SGD 5.3 billion |
|
Issue Price |
SGD 3 per rights share |
|
Rights Ratio |
3 rights shares for every 2 existing shares |
|
Trading Name |
SIA R |
|
Trading Code |
LRDR |
|
Source: Company Data, SGX Data as of 20 Apr 2020 |
|
Table 2: Key terms – rights issue for mandatory convertible bonds
|
Issue Size |
Up to approximately SGD 3.5 billion |
|
Issue Price |
SGD 1.00 for each SGD 1.00 in principal amount of the rights MCBs |
|
Maturity Date |
10th anniversary of the issue date of the rights MCBs |
|
Coupon |
Zero coupon |
|
Rights Ratio |
295 rights MCBs for every 100 existing shares |
|
Mandatory Conversion |
Mandatory conversion at maturity at Final Accreted Principal Amount |
|
Final Accreted Principal Amount |
SGD 1.80611 in respect of each SGD 1.00 in principal amount of rights MCBs on the Maturity Date (which is calculated based on a 6% annual yield to conversion, compounded on a semi-annual basis) |
|
Conversion Price |
Initially SGD 4.84 (subject to adjustments) |
|
Trading Name |
SIA MCB R |
|
Trading Code |
GANR |
|
Source: Company Data, SGX Data as of 20 Apr 2020 |
|
Both rights are renounceable, which means that ownership may be transferred. Shareholders who have received the rights but do not wish to exercise them have the option of selling them to other market participants on the secondary market between 13 May 2020 and 21 May 2020. Similarly, investors who wish to buy the rights can also do so during this period.
Important things to note regarding the MCB
Unlike the rights shares, which is pretty straightforward, the structure of the rights MCB is a little more complex. The MCB is a zero coupon bond, meaning investors will not receive interest payments for the entire 10 years. In exchange, they will receive a maturity amount that is higher than the principal amount. At maturity, bondholders will receive SGD 1.80611 for every SGD 1.00 in principal owned.
As the name suggests, the MCB will be converted into ordinary shares upon maturity, which means that instead of cash, bondholders will be paid an equivalent amount of SIA shares based on a conversion price of SGD 4.84 (subject to adjustments by SIA). This works out to be 373 shares per SGD 1,000 invested (SGD 1,806.11 divided by SGD 4.84).
Lastly, the MCB is also callable. This means that SIA has the option of redeeming the bonds early on every semi-annual date. In the event that SIA chooses to redeem the bonds before maturity, bondholders will receive a cash payment depending on the redemption price at that time.
The redemption price is calculated based on the semi-annual date that the MCBs are redeemed, and the respective yield-to-call per annum ranges from 4-6%, compounded on a semi-annual basis. (Table 3).
Table 3: Redemption schedule of the MCBs
|
Year |
Semi-Annual Date |
Redemption Price (%) |
Annual Yield-To-Call (%) |
|
1 |
1st |
102.000 |
4.0 |
|
1 |
2nd |
104.040 |
4.0 |
|
2 |
3rd |
106.121 |
4.0 |
|
2 |
4th |
108.243 |
4.0 |
|
3 |
5th |
110.408 |
4.0 |
|
3 |
6th |
112.616 |
4.0 |
|
4 |
7th |
114.869 |
4.0 |
|
4 |
8th |
117.166 |
4.0 |
|
5 |
9th |
124.886 |
5.0 |
|
5 |
10th |
128.008 |
5.0 |
|
6 |
11th |
131.209 |
5.0 |
|
6 |
12th |
134.489 |
5.0 |
|
7 |
13th |
137.851 |
5.0 |
|
7 |
14th |
141.297 |
5.0 |
|
8 |
15th |
155.797 |
6.0 |
|
8 |
16th |
160.471 |
6.0 |
|
9 |
17th |
165.285 |
6.0 |
|
9 |
18th |
170.243 |
6.0 |
|
10 |
19th |
175.351 |
6.0 |
|
Source: Company Data Data as of 20 Apr 20 |
|||
Table 4: Timetable of key events for SIA’s rights issue
|
Date |
Key Event |
|
5 May 2020 |
Last day of “cum-rights” trading of shares |
|
6 May 2020 |
First date for shares to trade “ex-rights” to the rights issue |
|
8 May 2020 |
Lodgement of the Offer Information Statement, the product highlights sheet and accompanying application forms with the MAS |
|
8 May 2020 |
Record Date |
|
13 May 2020 |
Despatch (where required) of the Offer Information Statement (together with the product highlights sheet, the ARE, the ARS or the PAL, as the case may be) to Entitled Shareholders |
|
13 May 2020 |
Commencement of trading of Rights |
|
13 May 2020 |
First date and time for acceptance of and payment for the rights shares, the rights MCBs and/or applications for excess rights shares and/or excess rights MCBs |
|
21 May 2020 |
Last date and time for splitting and trading of |
|
28 May 2020 |
Last date and time for acceptance of and payment for rights shares and/or rights MCBs and/or applications for excess rights shares and/or excess rights MCBs |
|
5 June 2020 |
Expected date of issuance of rights shares and |
|
8 June 2020 |
Expected date of commencement of trading of |
|
9 June 2020 |
Expected date of commencement of trading of |
|
Source: Company Data, SGX Data as of 20 Apr 2020 |
|
Implications for existing shareholders
From 13 May 2020 up till 28 May 2020, investors may exercise the rights. This means paying SGD 3 per rights share or SGD 1 per rights MCB in order to convert the rights into shares/MCB. Those who do should receive the securities on 5 June 2020, and may start trading them beginning 8 June 2020 for the ordinary shares and 9 June 2020 for the MCB. Investors who intend to exercise their rights should look out for further information in the offer information statement.
In the event where investors choose not to exercise their rights, the rights will automatically expire on 28 May 2020. On top of that, investors will likely see some dilution to the value of their shareholdings.
Table 5: Impact of rights issue on SIA’s EPS
|
Impact of rights issue on SIA’s EPS |
|
|
Weighted average number of shares (in million) |
1,183.3 |
|
EPS before rights issue (cents) |
57.7 |
|
Scenario 1: Impact of the share rights |
|
|
Weighted average number of shares after rights issue but before conversion of the rights MCBs (in million) |
2,961.0 |
|
EPS after rights issue but before conversion of the rights MCBs (cents) |
23.1 |
|
EPS dilution (%) |
59.9% |
|
Scenario 2: Impact of the rights MCB |
|
|
Weighted average number of shares after rights issue assuming conversion of all the rights MCBs (in million) |
4,265.6 |
|
EPS after rights Issue assuming conversion of all the rights MCBs (cents) |
16.0 |
|
EPS dilution (%) |
72.2% |
|
Scenario 3: Impact of the additional rights MCB |
|
|
Weighted average number of shares after additional issue assuming conversion of all the additional MCBs (in million) |
6,565.3 |
|
EPS after additional issue assuming conversion of all the additional MCBs (cents) |
10.4 |
|
EPS dilution (%) |
81.9% |
|
Source: Company Data Data as of 20 Apr 2020 |
|
It is important for investors to know that because of the significantly larger capital base caused by the rights issue, SIA’s earnings per share has declined substantially (net income is spread over a large number of shares).
As such, its share price is unlikely to recover to previous levels even if the company were to beef up its operational performance to pre-COVID levels. For the share price to return to where it was during the company’s heydays, SIA has to generate substantially higher earnings than before.
As mentioned earlier, the rights shares (SIA R) and the rights MCB (SIA MCB R) are both renounceable, which means that ownership may be transferred. SIA R (SGX:LRDR) and SIA MCB R (SGX:GANR) are both tradeable on the SGX just like individual stocks. Investors who do not wish to exercise their rights can sell them off in the secondary market. Conversely, investors who wish to buy more shares or MCBs can buy more rights in the secondary market and exercise them later.
For investors who have no intention of exercising their rights, we strongly recommend that they sell their rights in the secondary market during the designated trading period to generate some income. Please do not let the rights expire worthless.
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