S’PORE CAR­RIER STAR­ING AT NET-DEBT SPOT

Air­line may have to bor­row money, sell bonds to fund record plane-buy­ing spree

New Straits Times - - Business -

SIN­GA­PORE

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

BLOOMBERG PIC

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.

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