Singapore Airlines

[specuvestor]

yes Temasek does not manage CPF but our reserves indirectly. The foreign assets that Temasek manages is part of our reserves though it was funded primarily through TLC divestments over the decades. But I think what Karlmarx is saying is that the SSGS funding also comes partially from Temasek investment returns

There is an indirect link which people suspect but cannot articulate. The link is in the purchasing power of SGD. If we manage our reserve and FX well, a stable SGD vs imported goods will help to maintain Singaporean's purchasing power.

CPF on the other hand will never default, as it is payable in SGD, contrary to some uninformed comment by individuals on the net and election rallies. Just like if you have say Zimbabwe bonds that wil not default. Question is whether the money will become banana or funny money. Even if you get SGD retirement CPF at 5% interest when you're 67 but a cup of coffee costing $10 is not going to be any good. That's why comparison with neighbours have to be in context as well

Sorry I digress but back to SIA: I think the ineffective loss is hedging without actually consuming the underlying fuel. The problem with the hedge is not so much a decline in oil price but lack of revenue and the corresponding use of fuel. Say if SIA used $1b fuel and hedged $700m, if oil price drops 10% (approximate as they hedge jet fuel) they lose probably $70m so their PnL goes down $70m but with say $3b revenue that's still manageable on the OP line

But if rev suddenly drops to say $300m and your fuel consumption becomes say $100m as your flights get cancelled , then your hedge becomes 7X larger. That's the problem here and it will be further amplified in 1Q21

So I don't think we should expect too much MTM reversal per se as the hedges roll off but the ineffective hedge loss will continue to bite in 1Q21

To do so will be prejudicial to Temasek, who also has obligations to fund the state budget and CPF returns.

Since many of us have CPF, i probably have to correct the "misunderstanding" above that CPF returns are dependent on Temasek which contributes to the national budget as investment income.

There is some structural intricacies with how CPF generate its returns:

CPF buys SSGS --> SSGS bonds are guaranteed by Spore Gov --> the monies from SSGS are then held by MAS with GIC acting as the Fund Manager.

https://www.mof.gov.sg/policies/our-nati...bligations

The SSGS proceeds have not been passed to Temasek for management. Temasek hence does not manage any CPF monies

[cif5000]

The balance sheet review has more numbers.

Page 19:
- fair value movement on cash flow hedges (-$2,611 million)
- decrease in derivative assets (-$549 million)
- increase in derivative liabilities (+$3,260 million)

https://links.sgx.com/FileOpen/sgxann-q4...eID=610774

[Shiyi]

Thank you all for the explanation. Please bear with me with another question.

There are two items of hedging losses in the result announcement.
One is "hedging loss" ($130 m for Q4 FY19/20) and another "fuel hedging ineffectiveness"($710 million mark-to-market losses for FY 20/21). Since the fuel hedging ineffectiveness is surplus hedging for FY 20/21, will there be any writeback if SIA resume service earlier and take delivery of the fuel? Or will there be writeback if oil price goes back up?

In other words, I'm trying to find out if SIA "front-loaded" or "over-provided" the losses from fuel hedging

[touzi]

It means the CPF money within the sub-limit of the CPF Investment Account that is available for shares investment -ie Stock Limit.  An online CPF query will reveal the available amount that may be used for this right issue.

Got it, thanks. 

Anybody know of anyone who has SIA in CPF Investment Account? Have they heard from the agent bank? Till now I have not received any letter from UOB, my investment account bank. I check online, the provisional allotment is also not there  (mother share is there).

[ghchua]

Hi touzi,

I do not hold SIA shares in my CPF Investment Account, but from my experiences from previous rights issues with another agent bank, you would not be able to see your provisional allotment of nil paid rights entitlements on their internet banking platform. The only way you could see is to wait for them to send you a letter whereby you will be shown your nil paid rights entitlements and a form to fill up and indicate the number of rights shares that you will be applying. If you wish to sell your nil paid rights entitlements, you can perform the trade on your broker internet/mobile platforms but you must call them to change the trade to CPF before end of the trading day.

Please take note that for this rights issue, you can only use your CPF funds to subscribe to SIA rights shares. SIA rights MCB is not included for CPF Investments and therefore you cannot use your CPF funds to subscribe to it. If you wish to subscribe to SIA rights MCB for your CPF SIA MCB R, you have to indicate to your CPF agent bank to use cash instead.

Do take note that though the official closing date for this rights issue is 28 May 2020, your CPF agent bank may have a different closing date that is earlier than that. Please check with them accordingly.

[ACTIVIST SPEAKS]

Hazarding a Guess...

As the fuel hedging ineffectiveness is recorded as non-cash item, it should be a revaluation exercise (mark to market) rather than a realized loss. In extension, it is logical to assume that the hedge contracts (be it a swap, option or collar) should still be operative which exposed the company to either gain or further loss (as mgt expected) depending on the fuel prices.

Great stuff written here in the last couple days....

[edragon]

The loss may be realised as they may have sold the future contracts.

[edragon]

Hazarding a Guess...

As the fuel hedging ineffectiveness is recorded as non-cash item, it should be a revaluation exercise (mark to market) rather than a realized loss.  In extension, it is logical to assume that the hedge contracts (be it a swap, option or collar) should still be operative which exposed the company to either gain or further loss (as mgt expected) depending on the fuel prices.

Great stuff written here in the last couple days....

Put it simply ... a hedge is a bet in layman terms. If you loose a bet, you lost it. It does not matter if you continue to bet and hoping to win the next bet.
SIA have lost the hedge and it is a confirmed loss and no need to say in future we may win. 
That is for the future and no one knows it is a win or a loss.

[desmondxyz]

Hazarding a Guess...

As the fuel hedging ineffectiveness is recorded as non-cash item, it should be a revaluation exercise (mark to market) rather than a realized loss.  In extension, it is logical to assume that the hedge contracts (be it a swap, option or collar) should still be operative which exposed the company to either gain or further loss (as mgt expected) depending on the fuel prices.

Great stuff written here in the last couple days....

Put it simply ... a hedge is a bet in layman terms. If you loose a bet, you lost it. It does not matter if you continue to bet and hoping to win the next bet.
SIA have lost the hedge and it is a confirmed loss and no need to say in future we may win. 
That is for the future and no one knows it is a win or a loss.

SIA is quite lame in their fuel hedge, lost most of the time from the track record. 

[ACTIVIST SPEAKS]

Hazarding a Guess...

As the fuel hedging ineffectiveness is recorded as non-cash item, it should be a revaluation exercise (mark to market) rather than a realized loss.  In extension, it is logical to assume that the hedge contracts (be it a swap, option or collar) should still be operative which exposed the company to either gain or further loss (as mgt expected) depending on the fuel prices.

Great stuff written here in the last couple days....

Put it simply ... a hedge is a bet in layman terms. If you loose a bet, you lost it. It does not matter if you continue to bet and hoping to win the next bet.
SIA have lost the hedge and it is a confirmed loss and no need to say in future we may win. 
That is for the future and no one knows it is a win or a loss.

The question is whether the bet is still on or there is no more bet....from the financial statements, it suggests the position is not closed.  SQ acknowledges they have lost and that is why there is a charge to the income statement as Fuel Hedging Ineffectiveness.
But I do agree that this $710 million charge does appear to be irreversible even if price does go up