SIA share price (SGX: C6L) faces ambush from another cash call?

LIFETIME MEMBERSHIP Will SIA share price (SGX: C6L) do a Sembcorp Marine? The latter recently concluded a second billion dollars rights issue that took place less than a year, causing the share price to bomb out to less than $0.10. On 16 September 2021, SIA updated “that the remaining S$0.6 billion of the gross proceeds of S$8.8 billion raised from the 2020 Rights Issue has been applied towards aircraft and aircraft-related payments between 1 July 2021 and 1 September 2021”. Against this backdrop, investors must be wondering if another cash call is on the way.

In one year, SIA burnt through $9.3 billion of cash (including $500 million which had been used for the redemption of SIA’s 10-year Fixed Rate Notes on 9 July 2020). While there is more than sufficient cash for the airline to sustain till the end of this financial year, what will be the situation for the next financial year, which will begin in March 2022? Will there be another round of rights issue that rupture the form of SIA share price (SGX: C6L)?

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The hallmark of Singapore Inc is its ability to plan ahead. This is no different for SIA. Given that the new financial year is less than six months away, it is timely to ponder the prospect of another round of capital call by the management in 2022. You certainly don’t want to wait until the company faces a potential liquidity crunch then you start to initiate a rights issue. That would be a perfect recipe for disaster for SIA share price (SGX: C6L). In fact, this was what happened to Sembcorp Marine.

Looking back, it was really a “touch and go” situation for SIA share price (SGX: C6L) in 2020. The cash balances amounted to $2.7 billion as at 31 March 2020 but by 31 March 2021, the level of cash outflow from operating activities amounted to a staggering $3.3 billion. Hence, if the company had not raised fresh liquidity in early 2020, the national carrier would definitely have sunk into the abyss. In total, the company has raised $21.6 billion since 1 April 2020. As at 30 June 2021, cash balance stood at $13.7 billion.

Based on the recent 1st quarter financial result, it is unlikely that SIA will continue to burn the same magnitude of cash as it did in 2020. Net loss was $409 million compared to $1.1 billion in last year. As for the full-year cash flow from operating activities for FY2021/22, I do not foresee that the magnitude of the outflow would be the same as for last year. Assuming a worst-case scenario of annual $2 billion net cash outflow from operating activities, the airline should have sufficient cash to last till 2027 without another rights issue. By that time, I reckon COVID-19 pandemic would have ended.

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 (SGX: C6L) 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 (SGX: C6L) in bloody angst!

While the possibility of another round of rights issue is remotely low in 2022, it does not mean that SIA share price (SGX: C6L) is out of the woods. Data extracted from SGX shows that [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: September 24, 2021 — 11:54 am

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