Dear readers, SIA is undertaking a massive fund raising of up to $15 billion through the issuance of new shares and mandatory convertible bonds.
The rights share will be offered at $3 per share on the basis of three rights shares for every two existing shares held by shareholders.
SIA last trades at $6.08 and hence the $3 rights share will be at 51% off this last-traded price. For existing SIA shareholders, the logic I think is simple: subscribe to the rights share for dollar-cost averaging of their existing SIA holdings especially if their purchase price is more than the current share price. And for more dollar cost-averaging, some investors may want to apply for excess rights share.
I am not an existing shareholder of SIA but if I am, I may not be interested to apply for the rights issue. The reason is simply that I am not optimistic of the future of the aviation industry hence there could be a possibility that SIA stock price may trade even lower than $3 in future. I am not optimistic of the outlook for SIA stock for three reasons:
1. First, aviation-related stocks are in general challenging, this is a common-understood concept in investing. In good economy times, oil prices and hence cost to airlines are high. In bad economy times, people do not want to travel.
2. Second, before the emergence of Covid-19, the aviation industry scene is already challenging. Regional competition is strong.
3. Third, now with the emergence of Covid-19, the situation is even worse for aviation and it remains to be seen how the pandemic will last.
Yes, there could also opportunities that SIA stock could trade above $3 per share in future. But for me. my capital to be spent on the SIA Rights Issue could be better spent in some other equities that boast a high dividends yields, are of sound fundamentals and with a good industry outlook.
I would go so far as to speculate that if the latest fund raising for SIA is not sufficient, SIA may eventually be privatised to save some regulatory costs associated with being an listed entity as well as to avoid volatilities in stock prices and share capital.
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