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Above and beyond

27 Mar 2020 By Una Galani

Singapore Airlines is now in a rescue class of its own. The national carrier renowned for its luxurious service in the sky has lined up a generous $13 billion funding package underpinned by state investor and majority owner Temasek. Such largesse, without punishing existing shareholders, may be hard to match.

The whopping bailout comprises multiple parts. There’s a $2.8 billion bridge loan from Singapore-based DBS Bank. The carrier also will issue $3.7 billion of new shares at a deep 54% discount to the last closing price. Finally, there will be an initial $2.4 billion of zero-coupon bonds that only turn into equity after 10 years. Another $4.3 billion of convertible debt will follow.

Many minority shareholders are bound to participate. And even if they don’t, the deal structure ensures that Singapore Airlines can remain publicly listed. Combined, the total proceeds equal twice the company’s pre-deal market value. That should keep it from having to cancel orders for new aircraft and might even be enough to help it emerge from the pandemic fighting fit.

Temasek probably had little choice but to step in. The airline is too important to fail for a tiny city-state where the aviation industry supports more than 12% of GDP and accounts for 375,000 jobs. The equity component suggests that Singapore, a hub for the Southeast Asian region and beyond, is expecting a long and protracted downturn where profit remains elusive as border controls are slow to reopen.

Only a handful of places can probably replicate Singapore’s playbook – Dubai, Abu Dhabi and Qatar among them. Low oil prices will make it tougher but the fortunes of all three petrodollar emirates are also closely tied to the success of their airlines.

The United States is teeing up $50 billion to support airlines, but that could be spread among 10 or so carriers. Existing shareholders also probably won’t be able to share in as much of the upside. Temasek’s support provides not just capital, but also the imprimatur of an investor that generally thinks longer-term. Ultimately, that might put Singapore Airlines in a stronger competitive position than some of its peers when the crisis is over.


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