SIA share price still up by 13% following successful rights issue

Earlier this week, Singapore Airlines (SIA) said it successfully raised S$10 billion of liquidity through its recent rights issue and a mix of secured and unsecured credit facilities.

SIA shares rallied 2.6% following the update. As at 11:00 SGT on Thursday 11 June 2020, share price is back down slightly to S$4.25 per share – IG data showed. However, this still represents a 13% upside from end-of-May price levels.

SIA Group’s rights issue successfully completed on 05 June 2020

The group stated in a press release posted on Monday 08 June 2020 that it secured S$8.8 billion in liquidity through the successful completion of the rights issue on 05 June 2020. A further S$900 million was also raised through long term loans secured on some of SIA’s Airbus A350-900 and Boeing 787-10 aircraft.

A rights issue is an option given to existing company shareholders to purchase new shares at a reduced price so as to raise additional capital without going to the public.

While a rights issue can be non-dilutive due to the discount provided, SIA’s open-market value fell as much as 30% last month, after the company first undertook the issue on 07 May 2020. Over 1.7 billion new ordinary shares were issued at a price of S$3 for each rights share, alongside S$3.5 billion worth of mandatory convertible bonds in the denomination of S$1.00 for each rights bond.

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New credit lines and short-term unsecured loans

In addition, SIA has also arranged new committed lines of credit and a short-term unsecured loan with several banks, which it said would provide further fresh liquidity amounting to more than S$500 million. The group did not reveal the names of the banks.

Separately, all existing committed lines of credit that were due to mature during the course of 2020 have been renewed until 2021 or later. This renewal would ensure the airline has continued access to more than S$1.7 billion in liquidity.

Finally, the company also retains the option to raise up to a further S$6.2 billion in additional mandatory convertible bonds for the period up to July 2021 – as previously announced, which will provide further liquidity if necessary.

These liquidity measures put SIA ‘on a steady footing as it tackles the challenges posed by the global Covid-19 outbreak,’ the airline noted.

Singapore Airlines Chief Executive Goh Choon Phong, said: ‘We are grateful for the strong support of our shareholders for our successful rights issue, which has secured the company’s future amid an unprecedented global health and economic crisis.

We are also grateful to our relationship banks for their support in extending additional secured and unsecured loans, as well as committed lines of credit. SIA will remain steadfast and agile during this period of great uncertainty, and continue to act nimbly in responding to the evolving market conditions.’

SIA share price forecast for the rest of 2020

In terms of share price forecast, analysts from CIMB and United Overseas Bank (UOB) last month upgraded their rating on the stock following the group’s year-end earnings report.

CIMB broker Raymond Yap had given the stock an ‘add’ rating (up from ‘hold’), alongside a higher share price target of S$4.60 (up from S$4.45). He estimated that the group’s full-year core net loss for the 2021 financial year could potentially fall from the previous estimate of S$957 million to S$720 million, with fuel hedging losses already accounted for in FY2020

UOB’s K Ajith meanwhile upgraded his rating on the SIA stock to a ‘buy’ and a fair value purchase price of S$4.34 a share, as he believes that most of the air travel demand destruction has already been priced into current share price levels.

However, he did also warn that the group’s FY2021 loss is likely to be higher than S$1 billion as the consensus is still for air traffic recovery to be long drawn. On that note, he raised his net loss estimate for the group by S$1.2 billion.

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