Temasek Holdings Pvt. Ltd. (Temasek), owned by the Government of Singapore, has led the rescue funding for Singapore Airlines (SIA) worth a $13 billion in a bid to protect the airline company from sinking due to the tragic impact by the coronavirus outbreak. Amid the closure of several airline companies due to travel restrictions imposed by almost all the countries, the latest funding of SIA was the single biggest rescue effort for the company.
Temasek-led Rescue Funding
The global aviation industry, being a worse casualty of the virus epidemic, had been facing a deep financial crisis and the airline industry across the globe is at the edge of collapsing.
According to a data analytic firm, Cirium, nearly one-third of the world’s aircraft had been already grounded and issued orders for thousands of workers on unpaid leave due to the virus outbreak. Sources reported that several governments across the globe have imposed policies including restriction on air travel and cancelation of airline services in a view to containing the further escalation of the virus spread.
As a consequence of the impact on the global airline industry, SIA has witnessed shares down as much as 10.5% on Friday, March 27, 2020, and received a large sum of a rescue package to fight the slowdown of its business. As Reuter stated, Temasek, which owns about 55% of the group, has led the “S$5.3 billion equity and up to S$9.7 billion convertible note portions of the Singapore Airlines fundraising.”
The DBS Group Holdings Ltd., one of Singapore’s biggest financial lenders, has also issued an S$4 billion bridge loan facility to help the airline’s liquidity needs until the airline secures money from the rights issue. According to a source, “The rights issue will be offered at S$3 per share, a 53.8% discount to SIA’s last traded price of S$6.5.” SIA’s Chairman Peter Seah said in a statement late on Thursday, “This is an exceptional time for the SIA Group.”
Financial Turbulence of Singapore Airlines
Earlier Thursday, the airline company has witnessed its record slump of share price in 22 years this week which led to a rare trading halt due to a severe impact by the virus epidemic. Shukor Yusof, the head of aviation consultancy Endau Analytics, said in a blog post, “Under the current dire circumstances, the rights issue is the best tactical move for SIA. It underscores the carrier’s strategic importance to Singapore and the island state’s position both as a financial center and aviation hub.”
Facing the harsh impact, SIA had earlier announced that it would cut its operational capacity by 96% and ground almost its entire fleet with cutting off about 10,000 staff amid the “greatest challenge” the company ever faced. Meanwhile, on Thursday, the Singapore government announced a $30 billion budget to help businesses and households brace against the pandemic.
Following the deal, BofA analysts told clients, “While the raising looks earnings and valuation decretive, SIA now looks well-positioned to ride out the storm with balance sheet concerns largely de-risked.” Similarly, Temasek International CEO, Dilhan Pillay Sandrasegara said, “The deal would not only tide SIA over a short-term liquidity challenge but would position it for growth beyond the pandemic.”
Singapore Finance Minister, Heng Swee Keat welcomed the new move of Temasek and appreciated the decision to support the airline. SIA would use the funding from the rights issues to strengthen its capital and operational expenditure needs.
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