I previously wrote about the SIA Retail bonds in my last article.
While I was not keen on them, I wrote the following:
Let’s not forget who the largest shareholder of SIA is – Temasek Holdings.
SIA is of huge strategic importance to Singapore given that it’s our national airline carrier that in my opinion will not be allowed to fail especially given the exceptional circumstances of events.”
Last night, DPM Heng Swee Keat made the following comments in his budget speech:
The Deputy Prime Minister said the airline was a “strategic asset” for Singapore.
“Through the Government support for the aviation sector and, if necessary, more direct support measures, we will make sure that SIA is able to come through this in good shape,” he said,
“Ultimately this is about preserving the status of our air hub so that it can emerge stronger from this crisis.”
His comments are quite a huge gamechanger in that they have made clear that that support will be given to SIA to ensure not only its continued survival but for it to come out even stronger than before when the situation calms down.
Temasek Announces Support for SIA
Later that day, SIA announced that it was raising $8.8 billion via a rights issue of shares and convertible bonds.
This is a massive cash call by any measures.
In the short run, it is also arranging a $4 Billion bridging loan facility with DBS Bank to meet its near term liquidity needs (corporate transactions such as these take time to take place).
For the SIA Retail Bonds, this represents a significant boost.
First off, the government has already given its implicit support that under no circumstances will they allow a one-off event like COVID-19 to have a permanent impact on the aviation sector.
They have provided for significant financial measures to cushion the blow for the sector such as co-funding of wages for local workers of 75% for the sector.
Secondly, Temasek has announced that it will also stand by SIA in the midst of this crisis and provide it the financial support to tide through it and continue its transformation as an airline.
Since my last article, prices of the retail bonds fell almost all the way to 81+ cents before rebounding sharply over the last 2 days to about 95 cents on the dollar.
My Thoughts on the Bonds
At the end of my last article, I wrote that I would pass on the SIA bonds because they do not fit my investment criteria.
Armed with the new information on hand, I no longer believe that SIA will face a liquidity crunch and even if things deteriorate, the government has indicated it will step in to aid the sector.
At their prior low of 82 cents, they represented incredible value (with the benefit hindsight of course!).
Current prices have baked in the new financial support (and rightly so) and while they are still attractive, I have passed on it.
That being said, I think that the bonds are virtually guaranteed to be redeemed at par (personal opinion and not financial advice!).
PS: This article does not cover my thoughts on Singapore Airlines (SGX:C6L) shares which are an altogether different subject.
