S’PORE CARRIER STARING AT NET-DEBT SPOT
Airline may have to borrow money, sell bonds to fund record plane-buying spree
ARECORD plane-buying spree is poised to land Singapore Airlines Ltd in an unfamiliar territory. Southeast Asia’s biggest carrier is set to turn to a net-debt position as early as next year — for the first time in 13 years — as the company borrows money and sells bonds to meet capital expenditure needs, analysts say.
Singapore Airlines, which has traditionally limited its debt load, would benefit from raising funds more cheaply through borrowings to improve return ratios and valuations, say equity research firms, including OCBC Investment Research and Crucial Perspective.
The airline, which has US$53 billion (RM229.36 billion) of aircraft on order, expanded a medium-term note programme by two thirds to US$5 billion last month and said it intended to “proactively” take on more debt in future.
“I think it’s good for shareholders,” said Desmond Soon, Asia head of investment management at Western Asset Management Co, here.
A company that can borrow cheaply could have higher leverage, leading to an improved return on equity and, thus, better prospects for stockholders, he said.
Its five-year average return on equity — an indication of how efficient a company is at generating profits — is below that of Cathay Pacific Airways Ltd, according to data compiled by Bloomberg.
Singapore Airlines’s net debt may reach about S$660 million (RM2.05 billion) by the end of March next year, according to a report by Eugene Chua at OCBC Investment Research on February 9. That compared with net cash of about S$3.3 billion for the 12 months through March last year, Bloomberg-compiled data showed.
A net-debt position occurs when a company’s debt exceeds its cash and equivalents.
“Historically there has been lot of criticism Singapore Airlines’s balance sheet is lazy” because of its cash pile, said Corrine Png, chief executive officer of Crucial Perspective.
Singapore Airlines has the smallest debt-to-equity ratio among 11 major airlines on the MSCI Asia Pacific Index at 10.3 per cent, compared with 126 per cent for Cathay Pacific, data compiled by Bloomberg showed.
Capital expenditure at Singapore Airlines will average US$4.3 billion annually for the five years through March 2022, based on company figures in an investor presentation in November. The spending will peak in the 12 months beginning April next year, the year Singapore Airlines intends to restart the world’s longest non-stop flight.
Singapore Airlines has 214 planes on order, including 39 long-range aircraft from Boeing Co with a list price of US$13.8 billion. Discounts are customary in the industry for large orders.
The carrier is trading at 3.1 times of enterprise value to trailing 12-month earnings before interest, tax, depreciation, amortisation and rent costs, compared with eight times for Cathay Pacific, data compiled by Bloomberg showed. A lower figure means investors value Singapore Airlines less than Cathay Pacific. Bloomberg
Singapore Airlines’s net debt may hit about S$660 million by the end of March next year, compared with net cash of about S$3.3 billion for the 12 months through March last year.