Singapore Airlines shares dive 6pc despite S$15b fundraising plan backed by Temasek

Analysts said SIA was in a good position before the crisis and this financial injection would help cover its running costs even during this shutdown period. — Reuters pic
Analysts said SIA was in a good position before the crisis and this financial injection would help cover its running costs even during this shutdown period. — Reuters pic

SINGAPORE, March 28 — Singapore Airlines (SIA) may be getting a S$15 billion boost, largely supported by state investment firm Temasek Holdings, but its share price still fell when trading resumed yesterday, closing 6.46 per cent lower at S$6.08 (RM18.43).

The national carrier called a rare trading halt on Thursday. It then announced in the early hours yesterday that it was issuing shares and bonds to raise S$15 billion to fund its capital and operational expenditure, with Temasek, which owns about 55 per cent of SIA, backing its plans.

Despite the weak reception from investors, Brendan Sobie, independent analyst of Sobie Aviation, said the capital boost would put SIA in a “strong financial position”.

Greg Waldron, the Asia editor of aviation magazine Flight Global, said the S$15 billion would serve as a “war chest” that will see SIA through the economic slump brought about by the Covid-19 outbreak.

Analysts said SIA was in a good position before the crisis and this financial injection would help cover its running costs even during this shutdown period.

“It is an overwhelming figure that would cover even the worst-case scenarios,” said Sobie, who highlighted that other airlines who are also suffering have not been able to get this amount of funding as SIA.

SIA’s move to raise funds comes amid earlier cost-cutting measures of cutting its executives’ pay and requiring its staff to go on no-pay leave as the Covid-19 pandemic wreaks havoc in the aviation sector.

The carrier also decided to ground almost its entire fleet as demand for international air travel has skidded to a halt, with countries shutting their borders to curb the spread of the virus.

Waldron, however, said that it would be hard to estimate how far this S$15 billion would tide them through, given the unpredictability of how long the Covid-19 situation will last.

He said that air travel would probably come back in fits and starts, with some routes coming back online first while others still remain closed.

“When air travel comes back, it doesn’t mean everything is fine. It will be a complicated patchwork of things to navigate as there will be a lot of quarantines in place,” said Waldron.

However, Shukor Yusof, an aviation analyst at Endau Analytics, said: “One thing is for certain, the amount that has been decided takes into consideration a long-term (at least a year) projection.”

Dilutive effect on share price

Despite the huge capital boost, SIA shares still continued its downward trend, with the exception of the two trading days before it called for a halt.

Jack Wang, a partner at financial advisory firm Lexico Advisory, said that the issuing of new shares typically has a dilutive effect on the number of shares among existing shareholders and the earnings per share. This is because the share capital has been enlarged.

Another factor pushing its share price down could be the issue price of S$3 per share, which is more than a 50 per cent discount of SIA’s previous closing price of S$6.50.

Calling the magnitude “significant”, Wang said it is quite unusual for companies to offer such a level of discount when they issue new shares. A more typical range is a discount of between 20 and 30 per cent.

While one can argue that the offer price was set to make it attractive for existing shareholders to subscribe to the new shares, the market could also take it to signal that the current share price of SIA may be overvalued.

“The market may have mixed feelings. They might think, ‘Why not S$5, why not S$7? What is the rationale of setting it at S$3,’” he said.

However, Shukor said the issue price is “fair” as there are usually significant discounts in most cases of rights issues.

Help for the aviation sector

Analysts pointed out that another source of help for SIA would be the Government measures rolled out to help the aviation sector as a whole, which has been hit hard by the crisis.

Besides a S$350 million support package to fund rebates on landing and parking charges and rental relief for airlines, ground handlers and cargo agents, the Government will also pay for 75 per cent of wages of every Singaporean working in the aviation sector, up to a monthly wage cap of S$4,600.

The co-funding of aviation workers by the Government, which is one part of the Jobs Support Scheme, is able to help a larger mix of companies beyond tax rebates for Changi Airport or rebates for airlines, even though those are also helpful, pointed out Sobie.

While it helps airlines maintain their headcount so that they can quickly recover when demand for air travel returns, there are many other companies which support airlines. These include catering services and duty-free retail shops at Changi Airport, and they would also be able to receive help through this scheme, he said.

Independent aviation analyst Priveen Raj Naidu pointed out that many ground handlers and cabin crew do not have skills that can be transferred if they go to another sector and that these Government initiatives would help ease their concerns.

In a media statement on Thursday, Bara Pasupathi, the chief executive officer of Jetstar Asia, said that it has been working with several Government agencies to find temporary job opportunities for its staff during the temporary suspension of its flights.

More than one third of its crew have taken up roles with the Singapore Food Agency, National Environment Agency and Raffles Medical Group, he said. — TODAY

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