SIA mulling more debt points to potential dollar bonds

HONG KONG: As Singapore Airlines Ltd (SIA) considers broadening its debt sources amid plans to spend S$30.1bil (US$22bil), some analysts are pointing to the likelihood of a shift to US dollar bonds and the higher borrowing costs that may entail.

Chief financial officer Stephen Barnes said on May 19 that the carrier is looking to raise funds in different currency bonds. “Frankly, we will want to diversify,” he said, without mentioning any specific currencies.

While the local-currency market has been “quite receptive” to its issues, the airline is in “no pressing hurry” to diversify its funding and would take its time over the next year or so to look at options, Barnes said.

It would be “natural” for SIA to raise funds in US dollars given that the carrier’s capital commitments are denominated in that currency, according to Ajith Kom, analyst at UOB Kay Hian Pte Ltd. The brokerage is assuming some increase in borrowing costs for additional debt, Kom said.

Should it decide to tap international debt markets, the choice of currency would be one factor in determining the cost of financing.

All of the company’s outstanding notes are in Singapore dollars, where borrowing costs are on average lower than in the US-dollar debt market in Asia but higher than in the euro or yen.

Shares in South-East Asia’s biggest carrier posted their biggest two-day drop through May 22 since 2011 after the firm last week reported a surprise loss.

Despite booming demand for air travel in Asia, SIA and Cathay Pacific Airways Ltd are among premium carriers in the region facing rising competition from Middle Eastern, Chinese and low-cost carriers.

“Singapore Airlines has always maintained a modern fleet and the years ahead will see us taking delivery of many new-generation aircraft,” Nicholas Ionides, a company spokesman, said in an e-mail. “Our capital expenditure will be rising as we take advantage of new growth opportunities.”

Investments would be financed by cashflows from operations and an increase in debt in the coming years, Ionides said. “We see this as ultimately being a good move for the SIA Group, and for our shareholders, since it will improve the mix of equity and debt in SIA’s balance sheet, and so help us better manage our overall cost of capital.”

None of the three major credit-rating firms has a rating on SIA. The carrier is 55.7% held by stateowned investment firm Temasek Holdings Pte Ltd, which has AAA credit ratings from both Moody’s Investors Service and S&P Global Ratings.

If SIA were to be rated, “we are talking about an investment grade name,” said Bertrand Jabouley, director of Asia-Pacific corporate ratings at S&P.