What’s the latest on SIA shares ahead of end-April shareholders meeting?

Share price of Singapore Airlines (SIA) has managed to do a turn around in the last two weeks, since hitting a 21-year low of S$5.35 a share in late-March.

Since 03 April, the national air carrier of Singapore has seen its share value rebound 14.6%, following a series of government interventions and fiscal programmes. As at 16:25 SGT on 15 April, however, share price dropped 3.3% for the day.

As part of the Singapore government’s coronavirus economic stimulus – announced in three parts, the aviation sector would receive at least S$750 million in financial aid, including an enhanced jobs support scheme that will pay up to 75% of the first S$4600 of each employee’s monthly wage.

Additionally, a S$350 million aviation support package was also rolled out to provide rebates to airlines on ground operation fees like landing and parking charges, as well as rental and regulatory fees.

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SIA received approval to list up to 1.78 million rights shares

On Monday 13 April, SIA received an approval in-principle from the Singapore Exchange Securities Trading Limited (SGX) for the listing of and quotation for up to 1.78 million rights shares, up to S$3.5 billion in rights mandatory convertible bonds (MCBs), and up to 1.30 million new shares to be issued as per the conversion of the rights MCBs.

Right shares are additional shares that are issued by a company for existing shareholders to purchase.

The trading firm had also approved further rights MCB conversion shares to be issued in relation to any adjustments made to the conversion price of the rights MCBs.

This follows from the group’s announcement on 26 March – when it halted trading for a day – to offer all existing company shareholders S$5.3 billion in new equity and up to a further S$9.7 billion in the form of 10-year MCBs to help fund capital and operational expenditure requirements.

An extraordinary general meeting (EGM) in which shareholders will get to vote on the equity debt financing scheme will be held on 30 April via live webcast and audio feed.

Singapore sovereign wealth fund Temasek Holdings, which holds a majority stake of 55.46% in the airline, had given an explicit undertaking of the proposed resolutions and procured a subscription for its full entitlement and the remaining balance of both issuances.

The MCB fundraising programme will be split into two tranches – S$3.5 billion will initially be raised at S$1.00 each on the basis of 295 rights MCBs against every 100 existing ordinary shares, with the remaining S$6.2 billion to be raised over the subsequent months.

The next day, when trading resumed, SIA’s share price had plummeted 10% right out of the gate to S$5.85 per share.

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Analysts give SIA shares a ‘hold’ rating

As of 31 March, analysts from CIMB, DBS, OCBC and UOB have given the stock a ‘hold’ rating, alongside an average 12-month share price target of S$6.32 per share. This represents a 2.1% upside from current trading levels, based on IG data.

Of the brokers, UOB had the lowest share price expectation at S$5.80 per share, down from S$6.60 previously.

UOB analyst K Ajith said that while Temasek Holdings ‘has stepped in as a lender of last resort and availed SIA of substantial liquidity’, SIA still faces a challenging operating environment. He added that there is also the risk of funding requirements for its airline associates.

Furthermore, he noted that SIA’s righta issue at a steep discount is highly dilutive to shareholders. All things considered, however, the rights issue along with the MCB do help to reduce default risk substantially.

On that basis, he values SIA at 1.0x FY20 book value, on the assumption that 50% of the MCB is treated as debt.

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