Readers of my posts would know my opinion that the MCBs were a significant liability for SIA minority shareholders, because conversion in 2030/2031 would result in massive dilution of SIA stock. I had also expressed deep scepticism that SIA would be able to redeem the MCBs early (i.e. avoid a conversion event) and was surprised at how bullish DBS equity analysts were when they released a research report on SIA in May 2022.
Well, turns out that I am very likely to be wrong. SIA announced on 25 Oct 2022 that it would redeem the MCBs issued in 2020, to the tune of $3.86b. [BT link] The 2020 tranche was issued at $3.5b. There's also talk that SIA would likely redeem the 2021 tranche (issued at $6.2b), earlier than the 2031 conversion date - doing so would mean that the 2030/2031 dilution event is averted, and there is also potential for SIA to resume paying dividends to shareholders.
Some reflections on why my prediction was off:
1) I was focused primarily on net income. I estimated that SIA wouldn't be able to generate a cumulative $10b of profits by end of FY2030/31.
2) In doing so, I failed to consider the important fact that SIA had built up a sizeable warchest of cash and equivalents, arising from the various cash-raising exercises that it executed in 2020 and 2021. To put this in perspective, SIA had around $16b in cash and bank balances as at 30 June 2022. Pre-Covid, it looks as though the Group had around $3b in the same, although I am not sure if this is directly comparable as SIA appears to have changed its financial report format beginning in FY2020/21.
So in focusing my analysis just on net income alone, I didn't pay heed to the possibility that SIA could pay off the MCBs from its much-enlarged cash assets. Net of the $3.86b required for the committed redemption of the 2020 MCBs, SIA would still have around $12b in cash and equivalents.
With a boost in air travel from travel resumption helping to prop up SIA's quarterly profit, it now looks quite likely that SIA will be able to redeem the 2021 MCB tranches (around ~$7b including accrued interest) soon. This might happen sometime in 2H 2023 or possibly 1Q 2024.
