Our national carrier is in trouble. The devastating COVID-19 pandemic had decapacitated its fleets, resulting in SIA recording a full-year net loss of $212 million. This is the first ever full-year financial loss in the course of the carrier’s 48 years of operating history. Against this backdrop, all hell break loose for SIA share price. The announcement of the financial result also coincided with the recent mega rights exercise. These factors combined to cause SIA share price to roil to no end.
In my humble opinion, the trouble for SIA share price is not in the rights issue itself but rather the pricing of the rights. At $3.00, the rights represented a massive discount of 53.8% to the last traded SIA share price of $6.50 on 25 March 2020. Evidently, the rationale for such massive discount is to make the rights issue as appealing as possible to retail investors. But in doing so, many retail investors must be riled as many of them might have entered this counter at around $9 to $10.
To make matters worse, SIA share price is currently trading at $3.66, which is below the theoretical ex-rights price of $4.40. Is this the beginning of the end of SIA share price and should investors run for their lives? This is a difficult question to answer. For sure, Temasek Holdings will fight to the very end for SIA share price but given the uncertain economic outlook, nobody can be sure when SIA share price will hit bottom. And investors hate throwing good money after bad.
The issue size of the rights issue will inject $5.3 billion worth of equity, representing almost half of its current market capitalization of $10.6 billion. Based on this, those who subscribed for the rights should not expect SIA share price to recover to the $10.00 in the near term. That would be too unrealistic. Instead, the rights issue would help long-term investors to dollar-average their initial investments and reduce the paper losses incurred.
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 crisis of confidence
To be fair to the management, the full-year financial result was not as bad as I had expected it to be. Given the severity of the COVID-19 pandemic, I was expecting the full-year financial loss to be at least $500 million. In the end, the loss was mitigated by the strong operating results recorded in the first nine months of the financial year. Nonetheless, this is not to say that SIA share price is out of the woods.
For the FY2020/21, SIA share price should continue to [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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