Singapore Airlines Ltd (Credit View) – Rights Shares and Mandatory Convertible Bonds April 6, 2020 3584

  • Temasek Holdings (Private) Limited (Temasek) has underwritten a capital raising exercise to tide SIA through the COVID-19 pandemic. This will be done through a rights issue of ordinary shares of SIA (Rights Shares) and a rights issue of mandatory convertible bonds (Rights MCBs), raising a gross S$8.8bn.

Figure 1: Summary of the deal

Type of issue

Shares (mn)

Value (S$mn)

Per Share

Rights Entitlement






New issues




 3 for 2






Right MCB










Additional MCB





Source: Company PSR; TERP = theoretical ex-rights price, MCB = mandatory convertible bonds


Part 1: Rights issue of ordinary shares will raise S$5.3bn

Up to 1.777bn Rights Shares will be issued at an issue price of S$3.00 for each Rights Share on the basis of three (3) Rights Shares for every two (2) existing ordinary shares of SIA.

The Rights Shares represents a discount of approximately 45.5% to the SIA’s last traded price of S$5.50 on 3 April 2020 and a discount of approximately 25% to the theoretical ex-rights price (TERP) of S$4.00 per Share.

Below is an example of a shareholder with 1,000 existing SIA shares:

Figure 2: Every 1000 shares held, the shareholder will need to fork out ….

Current: 1,000 shares @ S$5.50




To subscribe for the rights:


Rights Shares: 1,500 shares @ S$3.00


Rights MCB: 295:100


Total additional cash investment needed to prevent dilution


Source: Company, PSR


Rights Shares rights can be sold in the open market if investors do not wish to exercise them.

Part 2: Rights issue of mandatory convertible bonds will raise S$3.5bn

295 Rights MCBs will be issued for every 100 existing ordinary shares to raise up to S$3.5bn. In other words, an existing shareholder with 1,000 SIA shares can purchase S$2,950 worth of MCBs.


The MCB is a zero-coupon bond converted into SIA shares at maturity or redemption by SIA. There will be no coupon interest paid. At the maturity date of 10 years, SIA will mandatorily convert all MCBs into shares. The number of Shares to be delivered to bondholders in respect of its holding of Rights MCBs will be determined by dividing the Accreted Principal Amount of the Rights MCBs held by such Bondholder as at the Maturity Date by the Conversion Price of S$4.84, which is at a premium of 21% to the TERP of S$4.00 per Share.

Bondholders will receive 373 shares for every S$1,000 invested in Rights MCBs today. At the maturity date, the Accreted Principal Amount will be S$1,806.11 for each S$1,000 invested in the Rights MCB. This means, if an investor invests S$1,000 in MCBs today, the MCB value will be S$1,806.11 at maturity date and the investor will receive S$1,806.11 / S$4.84 = 373 new SIA shares.

MCBs can be redeemed early at SIA’s discretion. The Rights MCBs may be redeemable at the option of SIA in whole or in part on every six-month anniversary of the issue date. In the event of early redemption, bondholders will receive in cash the relevant Accreted Principal Amount as at such semi-annual Date. The Redemption Price set out below has been calculated on the basis that the annual yield to call for the first 4 years from the date of issue of the Rights MCBs is 4% per annum, and the subsequent 3 years is 5% per annum and the subsequent 3 years is 6% per annum, compounded on a semi-annual basis.


Figure 3: Redemption schedule of the MCBs

Source: SIA circular dated 26 March 2020, PSR


For example, if a bondholder invested S$1,000 in Rights MCB and SIA redeems the whole amount early on the 4th Semi-Annual Date, the redemption price will be S$1,082.43 (108.243% x S$1,000) which bondholders will receive in cash, representing an annual compounded return of 4%.

Investors risk loss if SIA share price falls below the conversion price of S$4.84. If SIA share price falls below S$4.84 when the MCBs are redeemed, a loss will be incurred from paying a higher price to receive the new SIA shares at the redemption or maturity date.

The Rights MCBs are intended to be tradable on the active market. Investors may liquidate their Rights MCBs if they do not which to exercise them. They will also be able to liquidate MCBs that they have subscribed for by selling on the active market.

Part 3: SIA may issue S$6.2bn additional MCBs in the next 15 months

There may be a further issuance of up to approximately S$6.2bn aggregate principal amount of additional mandatory convertible bonds (the Additional MCBs) within 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM.


Proceeds to help with cash flow

The proceeds from the Rights Issue and any future issue of the Additional MCBs, which will be treated as equity in the balance sheet of the Company, will strengthen the Company’s balance sheet and liquidity position and enable the Company to meet its ongoing financial commitments, weathering the severe disruption to global air travel caused by the COVID-19 pandemic.


Figure 4: Redemption

Source: SIA circular dated 26 March 2020, PSR

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If i redeem the MCB before maturity, would the % redemption be based on current market price, rather than the $1 per bond?

About the author

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Timothy Ang
Research Analyst
Phillip Securities Research

Timothy covers credit analysis of local and foreign bonds. Previously an equity dealer, he handled equity trade execution and portfolio management. He has presented seminars for organisations such as SIAS, SPH and IRAS, commentated live market updates for 93.8FM, and authored investment articles for the Business Times newspaper. He graduated with a Bachelor of Commerce in Accounting & Finance from the University of Western Australia.

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