Singapore Airlines (SIA) Rights Shares and MCBs Issues – How To Make Sense Of Them

The Singapore Airlines (SIA) (SGX:C6L) rights issue is a complicated one and I bet most shareholders don’t know what is going on.

I always believe that financial products are not shampoos and education is the only way to bridge the knowledge gap.

I took the liberty to record a walkthrough of the rights issue document and highlight the salient points for SIA shareholders to take note of.

If you are not a video person, you can read the following main points accompanied with some explanations.

SIA is offering 2 different rights issues to raise money.

1. Rights shares
2. Rights Mandatory Convertible Bonds (MCBs)

Rights Shares

Rights Shares Issue: SIA is issuing more shares to raise money. Only shareholders will receive the rights to buy more shares. The cutoff date for the shareholder list is on 5 May 2020, 5pm. Thereafter, you won’t be able to receive the rights shares even if you buy SIA shares. For every 2 shares you have, you will get 3 rights shares. You don’t need to pay for the rights. They would be automatically deposited into your CDP or custodian accounts.

Renounceable rights: The rights shares are tradable on SGX. You can buy and sell them like a normal stock. If you don’t want to exercise the rights, you should sell them off. If you want to buy more shares you can also buy more rights and exercise them later. The rights shares will start trading from 13 May 2020, 9am till 21 May 2020, 5pm. The name of the rights shares will be “SIA R” with the symbol “LRDR”.

Issue Price at $3: This means that you need to pay $3 per rights share in order to convert the rights into shares. The exercise deadline is on 28 May 2020, 5pm. If you hold the shares in a custodian account, your broker may set a deadline earlier than 28 May. So take note of the timing. You have to pay for the rights via ATM if you hold the rights in CDP and transfer the money to your brokerage account if the rights are held under custody.

Theoretical Ex-rights Price (TERP) of S$4.40: SIA share price was around $6+ before the rights shares issue. As the new shares are issued at S$3, you can expect SIA share price to trade lower to around S$4.40 after the rights are issued. But the market may not trade according to this theoretical price.

Rights MCBs

Rights MCBs Issue: Besides the rights shares issue, SIA is also issuing rights MCBs to raise more cash. I suspect the reason for issuing MCBs is because there would be too much dilution if it is a pure rights shares issue and SIA share price will have to trade much lower. Thus to be clear, these are bonds and not shares.

Only shareholders will receive the rights to buy these bonds. The cutoff date for the shareholder list is on 5 May 2020, 5pm. Thereafter, you won’t be able to receive the rights MCBs even if you buy SIA shares. You will receive 295 rights MCBs for every 100 SIA shares you own. You don’t need to pay for the rights. They would be automatically deposited into your CDP or custodian accounts.

Renounceable rights: The rights MCBs are tradable on SGX. You can buy and sell like them like a normal stock. If you don’t want to exercise the rights, you should sell them off. If you want to buy more bonds you can also buy more rights and exercise them later. The rights MCBs will start trading from 13 May 2020, 9am till 21 May 2020, 5pm. The name of the rights MCBs will be “SIA MCB R” with the symbol “GANR”.

Issue Price at $1: This means that you need to pay $1 per rights MCB in order to convert the rights into bonds. The exercise deadline is on 28 May 2020, 5pm. If you hold the shares in a custodian account, your broker may set a deadline earlier than 28 May. So take note of the timing. You have to pay for the rights via ATM if you hold the rights in CDP and transfer the money to your brokerage account if the rights are held under custody.

Zero-coupon: The MCBs are zero-coupon bonds which means you will not receive interest payments. Instead, you will receive a maturity amount that is higher than the principal you have put in. The maturity amount is equivalent to S$1,806.11 based on $1,000 principal. Or every $1 you put in, you get $1.81 at the end of 10 years.

Mandatory Conversion: As the name emphasised mandatory conversion, this means that the bonds will be converted to SIA shares upon maturity. There will be no cash paid to you.

Callable: The MCBs are also redeemable by SIA before maturity. They can have the option to redeem once every 6 months. Your yield will range between 4% and 6% depending on the year of redemption. The closer to the maturity, the higher the yield.

SIA Rights Issues FAQ

Q: How soon will I see the rights in my CDP / custodian account?

Not sure. But definitely before 13 May 2020 because the rights will start trading.

Q: What prices should the rights shares and rights MCBs trade at?

Price of the Rights Shares should trade close to SIA share price – $3.

Price of the Rights MCBs should trade close to $0.

Q: I will have odd lots of Rights Shares and Rights MCBs, how do I sell them?

There are two more counters, SIA R1 (symbol:HTFR) and SIA MCB R1 (symbol:8YJR), where you can sell your odd lots. Ask your broker if you can amalgamate the orders for the R and R1 so that you only pay commission once.

Q: If my SIA shares are held under CPFIS, must I buy the Rights & MCBs using my CPF fund? If I decided to sell the Rights, will the proceeds go back to CPF or cash?

Yes, you can use CPF to fund the rights purchase, provided your CPF limit allows.

If you sell the rights, the monies will go back to your CPF.

Q: I have SIA shares which I have bought using cash, would I be able to exercise them with CPFIS instead of cash?

No. You have to use cash.

Q: I have SIA shares in my SRS account, what do I need to do?

Your agent bank which holds your shares in custody should inform you about your rights shares and MCBs. You have to follow their instructions to exercise them. Otherwise, you should sell the rights.

Q: How are our shares diluted if we don’t subscribe to the rights shares?

Your % ownership of SIA will reduce. Assuming you have 1m shares. And you didn’t buy more but the number of shares will increase anyway. So your % stake can drop from 0.08% to 0.03%.

Q: If i do not own any SIA share can i buy the rights shares?And how do these rights shares work after I buy them?

Yes, you can buy the rights shares even if you do not have SIA shares. After you buy the rights shares, you still have to pay to convert the rights to shares. Don’t buy if you have no intention to exercise the rights, because the rights will expire.

Q: Do we need to pay $4.84 for a MCB in order to convert it to a SIA share in 10 years’ time?

No need to pay. They will just give you the shares in exchange for the bonds.

Conclusion

We hope that we have simplified these rights issues to you. You have to understand this and decide what to do if you are a shareholder. Either sell the rights or exercise them. Don’t let the rights expire worthless!