Singapore Airlines

[r0n]

One interesting point is that in case one is holding SIA shares through CPF, one can only subscribe to the rights through Cash and not through CPF (I just found out from a DBS SMS).

Looking at the shareholding structure of SIA, DBS Nominees (4th largest shareholder, has 6.5% stake) looks likely to be the shareholder for CPF as well as SRS as its business is Trustee, Fiduciary and Custody services, though how much is CPF funds in that 6.5% stake cannot be found out.

My understanding is that your can open a CPFIS account with any of three local banks. Depending on which bank you use for CPFIS, your CPFIS shares should be under their nominees' account.

[ghchua]

My understanding is that your can open a CPFIS account with any of three local banks. Depending on which bank you use for CPFIS, your CPFIS shares should be under their nominees' account.

Hi r0n,

I think you have misunderstood. What Shrivathsa is saying is that if one is holding SIA shares under their CPFIS account with a nominees bank, they cannot use any of their funds in CPFIS account or CPF-OA account to subscribe for this MCB rights issue. What they can only do is to either sell their nil paid rights entitlements or subscribe to those MCB in cash. If you don't do anything, those nil paid rights entitlements will just expired worthless.

This is because under the CPF Investment Scheme, it does not allow CPF funds to be invested in convertibles like warrants. MCB is not considered as a straight bond as it is a product with an embedded option and therefore, it is not included under the CPF Investment Scheme.

For a list of products one can invest under the CPF Investment Scheme, please refer to the link below:
https://www.cpf.gov.sg/Assets/members/Do...oducts.pdf

[Shrivathsa]

Hi Ghchua,

Thank you, my apologies, I should have explained it better (like you).

My guess is that in the event a person holds SIA shares through CPFIS, they would have very little appetite to lock funds up using Cash.

[ghchua]

Hi Ghchua,

Thank you, my apologies, I should have explained it better (like you).

My guess is that in the event a person holds SIA shares through CPFIS, they would have very little appetite to lock funds up using Cash.

Hi Shrivathsa,

I think you have misunderstood the process. From my previous experiences in handling all these rights issues where one could not use CPF Investment account or CPF-OA account monies to subscribe (like rights warrants etc), one could actually transfer the warrants or convertibles out from CPF Investment account with agent bank to their own CDP account after using cash to subscribe at a cost. Therefore, your cash used to take up these rights are not locked up in CPF.

It is different from putting cash into CPF Investment Account to subscribe for a rights shares issue via CPF Investment Account. This is because you have not enough money in CPF-OA plus CPF Investment account or not enough CPF stock investment limit and you voluntary put in money to lock up to subscribe. The MCB rights is not because you don't have enough money in CPF or not enough CPF stock investment limit, it is due to a technical issue of a rights issue being not included for CPF Investment Scheme.

Hope that the above clarifies.

[r0n]

My understanding is that your can open a CPFIS account with any of three local banks. Depending on which bank you use for CPFIS, your CPFIS shares should be under their nominees' account.

Hi r0n,

I think you have misunderstood. What Shrivathsa is saying is that if one is holding SIA shares under their CPFIS account with a nominees bank, they cannot use any of their funds in CPFIS account or CPF-OA account to subscribe for this MCB rights issue. What they can only do is to either sell their nil paid rights entitlements or subscribe to those MCB in cash. If you don't do anything, those nil paid rights entitlements will just expired worthless.

This is because under the CPF Investment Scheme, it does not allow CPF funds to be invested in convertibles like warrants. MCB is not considered as a straight bond as it is a product with an embedded option and therefore, it is not included under the CPF Investment Scheme.

For a list of products one can invest under the CPF Investment Scheme, please refer to the link below:
https://www.cpf.gov.sg/Assets/members/Do...oducts.pdf

I do not think I have misunderstood anything but both of you missed the point I am trying to make. I am just making a point that the CPFIS shareholders is a subset of the three banks' nominee accounts and not just that of DBS. That's all.

[alanyeoinvest]

This is written by UOBKH about the MCB. Hope its useful.

https://alanyeoinvest.com/2021/06/02/on-...-issuance/

[¯|_(ツ)_/¯]

SQ@492

This morning SQ released

 it's May 2021 operating result:
The SIA Group’s passenger traffic (measured in revenue passenger-kilometres) grew on the back of a calibrated increase in passenger capacity (measured in available seatkilometres) over the past 12 months, which saw SIA Group’s passenger capacity rise to around 27% of pre-Covid-19 levels by May 2021. Passenger load factor (PLF) for the month increased 5.7 percentage points year-on-year to 14.3%.

SIA Cargo registered a monthly cargo load factor (CLF) of 87.7%, which was 12.8 percentage points higher year-on-year, as cargo traffic (measured in freight tonnekilometres) rose by 72.9% on the back of a capacity expansion of 47.7%. All route regions recorded year-on-year increases in CLF during the month.
https://links.sgx.com/FileOpen/opstats-m...eID=671446

If you have time, click on the announcement and there is a comparison table vs 2020.  I couldn't believe my eye, it's a really big contrast vs 2020 result.

I was excited and so just trace back and see the Mar 2021 result.
mmm...
Give you the link so that you don't have to search yourself.
https://links.sgx.com/FileOpen/opstats-m...eID=661060

Stay home and stay safe, everyone.

[Shrivathsa]

Under-subscription of MCB rights issue, No major surprise here, as the results are pretty similar to the previous MCB rights.

https://www.businesstimes.com.sg/compani...subscribed

[Shrivathsa]

Below is my theory why this was under-subscribed. Broadly speaking, there are two potential scenarios which may play out (for this 2021 MCB rights as well as the previous 2020 MCB rights).

Scenario 1

In this, airlines recover to pre-covid levels of traffic by 2023 end and by the time the final redemption of the bonds come due which is in 2030 and 2031, the share price of SIA has recovered to far beyond the conversion price of 4.84. For illustration, at the time of the rights in 2020, the issue price was SGD 3 and the current price is around SGD 5 for SIA shares. If it were put to a share-holder vote, logically, the share-holders of SIA would vote to pay back the bond with interest rather than convert it to shares. This means that the investor in the MCB gets 6% return pre-tax for a ten year period of investment.

Scenario 2

(Air travel remains sluggish / SIA is not able to compete against low-cost carriers / Losses due to not hedging fuel, which will be ironic, since a lot of the H1 2020 losses were due to both a collapse of demand and fuel hedge losses, There are other problems) In summary, stuff goes wrong and the share price is below 4.84 in 2030 / 2031. If it were put to a share-holder vote, logically, the share-holders of SIA would vote to convert it to shares rather than pay the bond. So, in summary, the MCB holder will lose money. Assuming that the share price will at the most fall to SGD 3, the potential loss is 38%

In a way, the potential gain is 6% and the potential loss is 38%, which would explain the under subscription

The main assumption is that since Temasek is the main holder of the bonds, they would have to abstain from the share-holder vote as they are an interested party in the transaction.

[ghchua]

Hi Shrivathsa,

I think you might have interpreted some terms of this SIA MCB wrongly. Do allow me to to share my views here.

1. SIA has the right to redeem the MCB in whole or parts on every 6 months anniversary of the issue date. Which means, an investor in 2021 MCB might not get even 6%pa compounded return. Initial years is only 4%pa compounded return. So, in your example under Scenario 1, SIA might redeem some or all of 2021 MCBs in 2023 if air travel recovers, and not wait until maturity in 2030 to save on interest costs.

2. Even if you like SIA MCB, you would have skip this 2021 MCB and go for 2020 MCB instead. This is because 2020 MCB is trading at around $1 in the market, and they have a higher maturity principal amount of $1.80611, as compared to $1.69797 for 2021 MCB. The conversion price and maturity date for both issues of MCB are the same. So obviously, one will pick 2020 MCB. Also do take note that 2020 MCB will step up interest rate faster than 2021 MCB, so if one wishes to bet for early redemption, logically, 2020 MCB will have higher interest cost and likely to be redeem earlier than 2021 MCB by SIA.

Ultimately, one can view buying SIA MCB as buying two parts together. That is, buying a zero coupon callable bond (maturing at 8 June 2030) + selling a put option (at Strike Price of S$4.84) on SIA (with some adjustments on each of the two parts due some unique feature of MCB which allows early redemption by issuer).

Having looked at each of the two parts, it is quite clear that initial years of 4%pa compounded return is not good enough for both parts. Even if you divide it equally, it is only 2%pa for each of it.

In summary, it is not a surprise that SIA 2021 MCB had been undersubscribed. Poor yield plus another choice of a more attractive 2020 MCB out there.