SIA share price faces brutal meltdown

Is the worst over for SIA share price? In all honesty, I don’t know. At this point of writing, the number of people infected by COVID-19 stood at 784,000 and number of deaths amounted to 38,000. The epic USD2 trillion stimulus package by US government had provided some boost to the stock market. But whether this is a sustainable run or just a bull trap remains to be seen. In this regard, is this a false dawn for SIA share price?

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Indeed, the devastating COVID-19 has brought the entire aviation industry to its knee and roiled SIA share price to no end. With border controls tightening around the whole world, the national carrier is forced to cut its flight capacity by a staggering 96%. In the early days, I predicted a V-shape recovery for SIA share price using 2003 SARS as point of reference. But it seems that I had grossly underestimated the impact of COVID-19.

With so many aircraft grounded, the airline could be facing cash flow issue in the coming months. That is probably the reason for the cash call made on 26 March 2020. The rights issue and mandatory convertible bonds would help to provide critical cover for capital and operational expenditure requirements. But what stunned investors must be the steep discount (53.8%) to SIA share price of $6.50 on 25 March 2020.

The theoretical ex-rights SIA share price is indicated as $4.40. Currently, SIA share price is trading at $5.80. In view of this, I expect this counter to be bearish in coming weeks. Also, note that this is a renounceable rights issue, so investors can either sell or buy the rights in the secondary market.

Should investors take up the offer? This is a tough question to answer because I have never like companies making cash calls. You never know if you are throwing good money after bad. Given the huge uncertainties ahead, there is a real risk that SIA share price may never recover to the $9.00 to $10.00 range. But then again, this is Singapore Airlines, the pride of our nation and the coveted asset of Temasek Holdings. Writing off SIA share price at this juncture will be too presumptuous.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in SIA before. Whether SIA share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

SIA share price in royal turbulence

CAPA Centre for Aviation predicted that most airlines will go bankrupt by end of May due to COVID-19. But with strong support from Singapore government, SIA should be the last man standing among the airlines. After all, the aviation industry employs more than 375,000 people and SIA is one of the biggest employers in the sector. Against this backdrop, the government would definitely not let Singapore Airlines collapse. But whether SIA share price will see the bottom soon remains a big question because the current crisis is unprecedented and highly unpredictable.

Investors must be having difficulty sleeping as year-to-date, SIA share price had plunged 36%. After ex-rights, SIA share price will likely [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: April 1, 2020 — 1:22 pm

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