Singapore Airlines

7 May 2020 Dollars and Sense published an article 

"Singapore Airlines (SIA) Rights Issue: The Curious Case of its Price Action after it wet Ex-Rights"
(click to read if you're curious)

"Key Timeline Of SIA Rights And MCB Issuance
6 May: Ex-rights
13 May to 21 May: Rights and MCBs are being traded on the bourse
28 May: If you still own the Rights or MCBs (as original SIA shareholders who are entitled to it or if you purchase on the open market), this will be the last day for subscription. You can pay for your rights through the ATM if your SIA shares are held under your own CDP or pay it through your custodian broker account.
8 June: Rights share will start trading (if you have subscribe to your rights by paying S$3/rights, you will now have additional SIA shares)
9 June: If you have subscribe to your Rights MCBs at S$1/MCB, your rights will be converted into bonds which are also traded."

Stay home and stay healthy, everyone.

(09-05-2020, 11:12 AM)¯|_(ツ)_/¯ Wrote: 7 May 2020 Dollars and Sense published an article 

"Singapore Airlines (SIA) Rights Issue: The Curious Case of its Price Action after it wet Ex-Rights"
(click to read if you're curious)

Is the article behind a paywall or something? It's not showing up for me.

Hi lonewolf

No. Here it is, considered it is publicly available.

Extracted from source -

SIA went ex-rights today and there was some pretty weird action in its share price which is pretty mind boggling and many can’t explain.

For those not caught up yet, you can read, SIA Rights Issue: Debunking The Complication Behind The Math, which “simplifies” the seemingly complicated SIA rights issue announcement and attempted to calculate what might the trading price be for the Rights and Mandatory Convertible Bonds (MCBs) when they start trading on the bourse.

Did SIA’s Value Go Up By 26% Overnight?
SIA’s share price closed at S$5.91 on 5 May 2020. On 6 May, the stock went ex-rights. First I believe that the “Rights” here includes both the 1) Right Shares as well as 2) the Rights MCBs.




SIA previously calculated that the Theoretical ex-rights Price (TERP) was S$4.40/share based on the last traded price of S$6.50 before the announcement of the intended rights issue was made. This TERP only includes the Rights Share component, based on the issuance of approx 1.78bn shares.

We previously shown that the calculation of the TERP price was as such:

At S$6.50/share with 1.18bn of outstanding shares, the market cap of SIA is S$7.67bn.

With the issuance of 1.78bn rights shares, the total number of shares will increase to 2.96bn. Total amount of capital raised = 1.78bn * S$3.00 = S$5.34bn.

So post rights issuance market value of SIA = (existing market cap (S$7.67bn) + new cash raised (S$5.34bn)) / total number of new shares (2.96bn) = S$4.40/share.

Based on the last closing price of S$5.91 which indicates a market cap of S$6.97bn, the TERP should be (existing market cap(S$6.97bn) + new cash raised (S$5.34bn))/the total number of new shares (2.96bn) = S$4.16/share.

This morning, SIA’s share price open at S$4.20 which is around the calculated TERP. However, it traded up to as high as S$5.04 and as of this writing, it is at S$4.77.

The current price of S$4.77 is even higher than the TERP price of S$4.40 base on a pre-ex-rights price of S$6.50. The current S$4.77 price would indicate a pre-ex-rights price of S$7.44!

Overnight, SIA’s price/share has increased from S$5.91 to S$7.44 which is an appreciation of 26%! What is going on here?

It is hard to fathom what the market is thinking at this moment pertaining to SIA. In the analysis above, we excluded the impact of the MCBs which should indicate a much lower TERP of S$4.16/share. Granted that these MCBs are not convertible to shares immediately. We have previously calculated that the ex-right price after all the conversions would have been in the arena of S$3.71/share based on the last closing price of S$5.91.

What is going to happen if the share price of SIA stays at S$4.77 when the rights are converted to shares (on the 8 June)?

Let’s assume that an investor bought 1,000 shares of SIA yesterday at S$5.91/share. The total outlay will be S$5,910 (excluding comms etc). For 1000 shares, he will be entitled to 1,500 right shares. He can exercise the rights, paying S$3/rights, and convert them into actual shares.

His total outlay will be S$10,410 (S$5,910 + S$4,500) and he is now the proud owner of 2,500 SIA shares. At S$4.77/share, that will equate to a market value of S$11,925 which is a quick profit of S$1,515. In addition, he will still have 2,950 Rights MCB which should be worth some value when they are tradeable.

I last calculated that value to be approx S$0.37/Rights MCB. 2,950 of them will equate to another S$1,091 in value. Total profit could be a hefty S$2,606 based on an outlay of S$10,410 or a quick turnaround of 25%! Even if I am wrong in the calculation of the Rights MCB value, it cannot be negative.

Hence an investor who bought SIA shares at S$5.91/share before the ex-right date (which is May 6) will be able to pocket at least S$1,515/share if the share price remains at S$4.77/share when his rights are converted to shares. Alternatively, if he is concern that the share price might decline from the current level, he can hedge and lock in the profit by shorting the counter (perhaps through CFDs or borrowed shares) until his rights are converted to actual shares.

if SIA’s share price is lower at that point, his hedges make money. If SIA’s share price is higher at that point, he can offset the losses on his hedges with his actual shares which are now worth more.

There could be other factors in play that might explain the price action of SIA such as potential redemption of short positions driving its share price up or the market all of a sudden became extremely positive over this rights issue. Bloomberg claims it could be due to hopes of easing lockdowns.

Already there are casualties in the market. The Daily Leverage Certificate 5x counter for SIA has been suspended as the underlying price has appreciated more than 20% from their theoretical adjusted price of S$3.71 which means that losses are now in excess 100% for this leverage product.

Key Timeline Of SIA Rights And MCB Issuance
6 May: Ex-rights

13 May to 21 May: Rights and MCBs are being traded on the bourse

28 May: If you still own the Rights or MCBs (as original SIA shareholders who are entitled to it or if you purchase on the open market), this will be the last day for subscription. You can pay for your rights through the ATM if your SIA shares are held under your own CDP or pay it through your custodian broker account.

8 June: Rights share will start trading (if you have subscribe to your rights by paying S$3/rights, you will now have additional SIA shares)

9 June: If you have subscribe to your Rights MCBs at S$1/MCB, your rights will be converted into bonds which are also traded.

An Eye-Popping Phenomenon In The Market
This has really been an eye opener and frankly a development which many did not expect. SIA’s market cap has just appreciated by 26% overnight!

It remains to be seen what will happen in June. Readers who have more insights pertaining to this “unique” situation, do feel free to share your thoughts.

With circumstances like low jet fuel prices, low rates in leasing of aircraft
low landing and agent handling fees, this is probably the best time to start an airline.

(11-05-2020, 11:30 AM)Porkbelly Wrote: With circumstances like low jet fuel prices, low rates in leasing of aircraft
low landing and agent handling fees, this is probably the best time to start an airline.

It's not so simple sir, you are competiting against the finanical mights of sovereign wealth funds which supports national airlines almost forever, at anytime, anywhere... eg, SIA/temasek/singapore, emirates/UAE, etc..

It's never a pure commercial decision why airlines need to continue to operate... :O

stay out of it...

:O

(11-05-2020, 11:30 AM)Porkbelly Wrote: With circumstances like low jet fuel prices, low rates in leasing of aircraft
low landing and agent handling fees, this is probably the best time to start an airline.

Even with rock bottom costs and expenses, if there's no revenue, you will still be facing operating losses. Too many airplanes, too little travellers, for the foreseeable future. Aviation industry is not going to be a V shape recovery for sure. It will take many years before aviation can recover back to the peak of 2019, which is probably when Covid19 is totally eliminated from earth. Why did Warren Buffett cut loss and sell off his four US airlines stakes? It is simply a case of supply and demand dynamics.

It is difficult to predict for certainty how the travel industry will be in next 3 months or 6 months BUT within the next 3 months it would either be the same or there is slight improvement. Many airlines already allow booking of tickets with free change of schedule up to a year.

I don't see how any country can keep themselves isolated as sooner or later the virus will come knocking at their door. Without a vaccine in sight, the next best thing is generating herd immunity. A critical level must be reached before authorities would be comfortable to open their doors.

I believe the traveling public would change their holiday plans. More would seek green tours and etc rather than city tours.

On top of this, China and USA tensions, economic uncertainty from various reasons including political, another viral pandemic?

In short, I do see a recovery which is a given but when it is impossible to predict.


With this virus, there are so many new variables as nobody really know the capability of the virus. It may turn out to be another flu virus but with a twist which I think would be more virulent and more deadly.

There are reasons why individuals or even groups violate the CB and SHN because freedom of movement is something we take for granted. Like in China, once the restrictions were lifted, there was pent up demand.

From my perspective I don't foresee a V shape recovery for the industry but rather a U or a slightly prolonged L. Why? Many already used up their annual leave (force to take during CB) and so where is there is annual leave left to travel. Many are trying to salvage their business to break even or try to improve their viability. The few who still travel for leisure would not be affected by Covid because they have disposable income or semi - fully retired. 14 day quarantine would not be lifted at the same time by many countries. So staggering of lifting restrictions probably until end of June or end of 3rd quarter.

(10-05-2020, 02:09 PM)Yoyo Wrote: Hi lonewolf

No. Here it is, considered it is publicly available.

Extracted from source -

SIA went ex-rights today and there was some pretty weird action in its share price which is pretty mind boggling and many can’t explain.

For those not caught up yet, you can read, SIA Rights Issue: Debunking The Complication Behind The Math, which “simplifies” the seemingly complicated SIA rights issue announcement and attempted to calculate what might the trading price be for the Rights and Mandatory Convertible Bonds (MCBs) when they start trading on the bourse.

Did SIA’s Value Go Up By 26% Overnight?
SIA’s share price closed at S$5.91 on 5 May 2020. On 6 May, the stock went ex-rights. First I believe that the “Rights” here includes both the 1) Right Shares as well as 2) the Rights MCBs.




SIA previously calculated that the Theoretical ex-rights Price (TERP) was S$4.40/share based on the last traded price of S$6.50 before the announcement of the intended rights issue was made. This TERP only includes the Rights Share component, based on the issuance of approx 1.78bn shares.

We previously shown that the calculation of the TERP price was as such:

At S$6.50/share with 1.18bn of outstanding shares, the market cap of SIA is S$7.67bn.

With the issuance of 1.78bn rights shares, the total number of shares will increase to 2.96bn. Total amount of capital raised = 1.78bn * S$3.00 = S$5.34bn.

So post rights issuance market value of SIA = (existing market cap (S$7.67bn) + new cash raised (S$5.34bn)) / total number of new shares (2.96bn) = S$4.40/share.

Based on the last closing price of S$5.91 which indicates a market cap of S$6.97bn, the TERP should be (existing market cap(S$6.97bn) + new cash raised (S$5.34bn))/the total number of new shares (2.96bn) = S$4.16/share.

This morning, SIA’s share price open at S$4.20 which is around the calculated TERP. However, it traded up to as high as S$5.04 and as of this writing, it is at S$4.77.

The current price of S$4.77 is even higher than the TERP price of S$4.40 base on a pre-ex-rights price of S$6.50. The current S$4.77 price would indicate a pre-ex-rights price of S$7.44!

Overnight, SIA’s price/share has increased from S$5.91 to S$7.44 which is an appreciation of 26%! What is going on here?

It is hard to fathom what the market is thinking at this moment pertaining to SIA. In the analysis above, we excluded the impact of the MCBs which should indicate a much lower TERP of S$4.16/share. Granted that these MCBs are not convertible to shares immediately. We have previously calculated that the ex-right price after all the conversions would have been in the arena of S$3.71/share based on the last closing price of S$5.91.

What is going to happen if the share price of SIA stays at S$4.77 when the rights are converted to shares (on the 8 June)?

Let’s assume that an investor bought 1,000 shares of SIA yesterday at S$5.91/share. The total outlay will be S$5,910 (excluding comms etc). For 1000 shares, he will be entitled to 1,500 right shares. He can exercise the rights, paying S$3/rights, and convert them into actual shares.

His total outlay will be S$10,410 (S$5,910 + S$4,500) and he is now the proud owner of 2,500 SIA shares. At S$4.77/share, that will equate to a market value of S$11,925 which is a quick profit of S$1,515. In addition, he will still have 2,950 Rights MCB which should be worth some value when they are tradeable.

I last calculated that value to be approx S$0.37/Rights MCB. 2,950 of them will equate to another S$1,091 in value. Total profit could be a hefty S$2,606 based on an outlay of S$10,410 or a quick turnaround of 25%! Even if I am wrong in the calculation of the Rights MCB value, it cannot be negative.

Hence an investor who bought SIA shares at S$5.91/share before the ex-right date (which is May 6) will be able to pocket at least S$1,515/share if the share price remains at S$4.77/share when his rights are converted to shares. Alternatively, if he is concern that the share price might decline from the current level, he can hedge and lock in the profit by shorting the counter (perhaps through CFDs or borrowed shares) until his rights are converted to actual shares.

if SIA’s share price is lower at that point, his hedges make money. If SIA’s share price is higher at that point, he can offset the losses on his hedges with his actual shares which are now worth more.

There could be other factors in play that might explain the price action of SIA such as potential redemption of short positions driving its share price up or the market all of a sudden became extremely positive over this rights issue. Bloomberg claims it could be due to hopes of easing lockdowns.

Already there are casualties in the market. The Daily Leverage Certificate 5x counter for SIA has been suspended as the underlying price has appreciated more than 20% from their theoretical adjusted price of S$3.71 which means that losses are now in excess 100% for this leverage product.

Key Timeline Of SIA Rights And MCB Issuance
6 May: Ex-rights

13 May to 21 May: Rights and MCBs are being traded on the bourse

28 May: If you still own the Rights or MCBs (as original SIA shareholders who are entitled to it or if you purchase on the open market), this will be the last day for subscription. You can pay for your rights through the ATM if your SIA shares are held under your own CDP or pay it through your custodian broker account.

8 June: Rights share will start trading (if you have subscribe to your rights by paying S$3/rights, you will now have additional SIA shares)

9 June: If you have subscribe to your Rights MCBs at S$1/MCB, your rights will be converted into bonds which are also traded.

An Eye-Popping Phenomenon In The Market
This has really been an eye opener and frankly a development which many did not expect. SIA’s market cap has just appreciated by 26% overnight!

It remains to be seen what will happen in June. Readers who have more insights pertaining to this “unique” situation, do feel free to share your thoughts.

The author of this article has given an update of the value of MCB rights.
Now he thinks that the MCB rights is close to zero instead of $0.37 as estimated earlier. Wow, what a u-turn!

[color=rgba(0, 0, 0, 0.99)][Update]: I believe that the value of the Rights MCB, while not negative, is likely to be close to zero. It does not make sense for an investor to pay S$0.37 for each Right MCB, convert it to the bond at S$1 for a total cost outlay of S$1.37, and risk having SIA claw back the bond 6 months later at S$1.02.[/color]

For such national duty commitment by sovereign fund effectively tax payers past contribution, the converted rights and mcbs should be distributed free to all adult citizens, don't see a value in such subscription by retail investors

(11-05-2020, 07:08 PM)pianist Wrote: For such national duty commitment by sovereign fund effectively tax payers past contribution, the converted rights and mcbs should be distributed free to all adult citizens, don't see a value in such subscription by retail investors

distributed to everyone, then who control the company? the mgt?