Singapore Airlines' share price sinks 10% as US$15 billion of new securities issued

The Singapore carrier saw share price sink under S$6 a day after it announced the sale of new shares and convertible bonds to raise US$15 billion in cash.

Share price of air carrier Singapore Airlines plummeted 10% to S$5.85 per share as its counter resumed trading on Friday 27 March.

On Thursday 26 March, the group requested for a trading halt, citing the pending release of an announcement. Later that day, the group announced that it will offer all existing shareholders S$5.3 billion in new equity and up to a further S$9.7 billion in the form of 10-year Mandatory Convertible Bonds (MCB), to help fund capital and operational expenditure requirements.

The company also revealed that it is in the process of organising a S$4 billion bridge loan facility with DBS Bank, to support near-term liquidity requirements.

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SIA Chairman Peter Seah said: ‘This is an exceptional time for the SIA Group. Since the onset of the Covid-19 outbreak, passenger demand has fallen precipitously amid an unprecedented closure of borders worldwide.

‘The Board is confident that this package of new funding will ensure that SIA is equipped with the resources to overcome the current challenges, and be in a position of strength to grow and reinforce our leadership in the aviation sector.’

The aviation sector contributes to more than 12% of Singapore’s GDP and provides 375,000 jobs every year. The SIA Group and its various flight divisions account for more than half of the passengers flying in and out of Changi Airport.

Read also: What's the latest on the DBS, OCBC and UOB's share prices amid the coronavirus?

SIA Group’s share price sunk to 21-year low

At the start of the week, SIA Group’s securities had dropped to a 21-year low price, after it announced that it would be cutting 96% of its scheduled capacity for up to end-April 2020, given the tightening of border controls around the world over the last one week to combat the coronavirus pandemic.

The cuts would result in the grounding of around 138 SIA and SilkAir aircraft, out of a total fleet of 147, amid what the group has called ‘the greatest challenge…in its existence’.

To-date, SIA Group has announced six rounds of capacity cuts since February 2020 – when the coronavirus first began to spread.

The group’s low-cost unit Scoot has also suspended most of its network, resulting in the grounding of 47 of its fleet of 49 aircraft.

The company stated that it remains unclear when the group can resume normal operations, given the uncertainty as to when the stringent border controls will be lifted, adding that ‘the resultant collapse in the demand for air travel has led to a significant decline in SIA’s passenger revenues’.

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Why analysts lowered their SIA share price targets by over 30%

Analysts had last week lowered their share price ratings and targets on the group’s stocks, based on the 17 March announcement.

OCBC researchers lowered their 12-month share target price for SIA to S$6.60 per share on a ‘hold’ rating, down from S$9.90 previously. They estimated that the group’s earnings for the 2020 and 2021 financial years will be reduced by 55% and 39% respectively with Covid-19’s impact expected to last beyond the third quarter of 2021.

Furthermore, the airline is trading at 0.6x price-to-booking ratio, which is 26% lower than the 2008 Global Financial Crisis level.

‘While valuations look attractive, we would continue to see volatility ahead, and growing pressure on load factors and yields. As such we remain cautious on Singapore Airlines and would watch out for signs of stabilisation (i.e. declining trend of new Covid-19 cases before reviewing our rating),’ the OCBC team wrote in a note.

DBS analysts lowered their 12-month share price targets by over 35% from S$10.40 to S$6.60 per share on a ‘hold’ rating on 19 March.

They stated that apart from an expected 66% decline in passenger revenue as per the 17 March announcement, losses from fuel costs caused by hedging (SIA had hedged 73% of its projected fuel consumption for 2021 at between US$58 per barrel for Brent crude and US$74 per barrel for jet fuel) will also amount to an estimated S$1.2 billion with oil prices now in the US$20 range.

Finally, they projected that the full-year pre-tax earnings for 2021 would be a loss of S$1.263 billion on a 25% full-year revenue decline.

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