Goldman Sachs deems Singapore Airline’s plans to raise up to S$15 billion ($10 billion) the “gold standard” among coronavirus-related rescue packages for airlines.
“We view that as really the gold standard for the packages that have been put in place,” Nicola Dondi, managing director at Goldman Sachs (Asia), said at a webinar hosted by Airline Economics on 17 April, discussing the impact of Covid-19 on the Asian aviation market.
The plan is backed by SIA’s largest shareholder Temasek Holdings and Dondi says: “It’s a comprehensive package. It’s very large in quantum. It gives Singapore Airlines a lot of additional liquidity and it’s obviously led by a blue-chip shareholder that was already a shareholder in Singapore Airlines, who has shown further commitment to the company.”
SIA’s shareholders will vote at the end of this month on an issuance of S$5.3 billion in equity and S$3.5 billion in 10-year mandatory convertible bonds. The plan also offers SIA the option to issue S$6.2 billion through additional tranches over subsequent months.
Temasek, a government-owned investment company, has said it will vote in favour of the measure.
In addition to the equity and convertible bond offering, SIA also signed for a S$4 billlion bridge loan with Singapore’s DBS Bank, to support the company’s “near-term liquidity requirements”.
Dondi says: “[B]y showing strong shareholder commitment, effectively market access is reestablished and the ability to go and raise capital in the capital markets or in the bank market is reestablished.”
Other governments have taken “slightly different approaches” to that of Singapore, he says, pointing to Air New Zealand. In March, the carrier secured standby funding of up to NZ$900 million ($540 million) from the government, which holds a 52% stake.
Dondi notes: “That is a loan facility which is priced substantially in line with market. It is not an equity investment, which obviously protects the existing shareholders and, to some extent, there is a market that is invested in the equity of Air New Zealand.”
He adds: “It comes with a number of governance and terms and conditions attached to it as you would expect and as is generally the norm for these kind of rescue packages.”
Dondi highlights that government support for Norwegian Air and SAS have likewise eschewed injecting equity in favour of providing bridge or loan financing in order to provide liquidity.
“Generally, the time horizon that we have seen being implemented as part of these packages is through year-end or potentially through 2021 depending on the perspective of the airline and the shareholder, but generally speaking we expect these packages to be widely spread across the industry especially for flag carriers and especially for airlines that are of national importance.”
Dondi is also keeping a close eye on the airline rescue packages being prepared in the USA.
“It’s pretty clear that the amount of firepower will be meaningful both in terms of direct grants and in terms of guarantees that are available to airlines to go and raise liquidity in the capital markets,” he says, though adds that they will not be without expected terms and conditions like bans on executive compensation and limits on paying dividends.
“[That is] nothing quite unusual when it comes to rescue packages, and is in line with what we’ve seen in 2008 and 2009 [during the financial crisis] when it came to banks and non-bank financial institutions being bailed out by their respective governments,” he added.
“But obviously [it is] very unprecedented for the aviation industry and for the airline industry in particular – but very much warranted by the magnitude of the market event we are withstanding.”
