SGD New Issue Review : SIA 7Y 3.145% and 10Y 3.75%

NEW ISSUE: SINGAPORE AIRLINES SGD 7YR & 10YR

Issuer: Singapore Airlines Limited
Status: Senior, Unsecured, Fixed Rate
Rating: Unrated
Format: Reg S, S274 & 275 of Singapore SFA, issued off the S$2bn Multicurrency MTN Programme
Tenor: 7 years | 10 years
Issue Size: SGD 200 million    | SGD 300 million
Yield: 3.145%| 3.75%
Payment: Semi-annual, actual/365 (fixed)
Issue Date: 8 April 2014
Maturity Date: 8 April 2021| 8 April 2024
Details: SGD250k denoms / Singapore Law / CDP / SGX-ST

• New Singapore Airlines SGD 7yr and 10yr announced, driven by strong anchor interests
• 7yr:Yield at 3.145% (the number, will not change), issue size at SGD200mm
• 10yr:Yield at 3.75% (the number, will not change), issue size at SGD300mm
• Timing: As early as today

Comps:
SIASP 3.22 2020 at 2.91%
SIASP 2.15 2015 at 0.87%

Credit Highlights:
–   54%-owned by Temasek Holdings, which is in turn wholly-owned by the Singapore Government
–   World class airline with reputation for superior service and reliability
–   World’s leading passenger and cargo airline with one of the youngest and most fuel efficient fleet among airlines
–   Core operations are well integrated with cargo, ground-handling, in-flight catering and engineering related services
–   One of the few truly global and internationally acclaimed homegrown companies
–   Consistent winner of major industry awards and accolades especially from the business traveler segment
–   Strong balance sheet (31 Dec 2013 Total Assets: S$12,624.0m; Total Equity: S$13,668.6m) will enable SIA to ride out future drop in passenger and cargo traffic caused by economic downturn, as demonstrated by its performance during the recent credit crisis

Household name !

Counted 16 analysts recommendations – 7 Buys & Overweight,  8 Neutrals & Holds and 1 VERY BRAVE SELL

Even Goldman Sachs don’t dare to say SELL on Singapore’s number one and only airlines ! (So I will leave you to guess who made that call and it is not Muddy Waters)

Majority owned by Temasek. Market Cap SGD 12.19 bio. Est P/E ratio 27.19 (quite high) and gross dividend yield 2.61% (dividend growth rate over 5 years is -23%).

Shares not doing well for the 19th largest airline in the world by market capitalisation and I can’t believe SIA is tinier than Hainan Air.

Trivia – World’s Largest Airlines (out of total 121 that I found)

AIRLINE	MKT CAP IN USD
DELTA AIR   (BB-)	47,590,141,952.00
UNITED CONTINENT (B)	31,790,186,496.00
AMERICAN AIRLINE  (B)	29,989,992,448.00
AIR CHINA LTD	26,627,678,736.75
DEUTSCHE LUFT (BBB-)	22,074,503,015.47
INTL CONS AIRLINE(BB)	21,156,534,878.22
LATAM AIRLINES  (BB)	18,634,104,832.00
CHINA SOUTHERN	18,192,853,718.61
AIR FRANCE-KLM	18,181,838,431.05
KOREAN AIR LINES	17,974,321,013.64
CHINA EAST AIR	17,235,581,885.23
SOUTHWEST AIR(BBB-)	17,006,943,232.00
CATHAY PAC AIR	15,024,123,726.73
RYANAIR HLDGS(BBB+)	13,416,462,929.92
HAINAN AIRLINE	13,099,963,878.60
ANA HOLDINGS INC	12,516,520,278.91
TURK HAVA YOLLAR	9,524,537,921.71
JAPAN AIRLINES	8,766,376,851.16
SINGAPORE AIRLINE	8,734,742,497.18
EASYJET PLC	7,983,634,960.38

And not a single one of the 121 airline companies are rated any better than BBB+ by the S&P.

So getting 3.145% for 7 years is a good deal (54% owned by Temasek) ? HDB 7Y is at 3.008% and a part of the Singapore government !

My fund manager friend says yes and so do all the insurance companies in Singapore, which means you better not buy because all your pension and insurance premiums are going into it so why double up ? Head for Olam instead (NOT) ? Because it may be 100% Temasek owned soon ?

This is how a fund manager thinks.

1. SIA is profit making, HDB is …not really or don’t know
2. SIA is publicly listed, HDB is not
3. Temasek is assumed to remain the majority shareholder forever (because there are 4 companies they will never let go).
4. SIA is CASH RICH sitting on SGD 5 bio in cash and cash equivalents at as end Mar 2013
5. The last time SIA issued was in 2010 and they are an infrequent borrower.
6. It is under geared at 1.7 times financial leverage ratio
7. Lastly, it is because they are choking on their HDB holdings which has gotten cheaper and cheaper as HDB issues (because last Jan’s HDB 5 year 1.23% for SGD 1.2 bio was killed by their 1.875% 4 year that came out in Nov for SGD 1.5 bio but the recent 7 year 3.008% for only SGD 750 mio really trumped them all)

This is what I think.

1. SIA has been doing stock buy backs this entire year. Counted 6 times.13 Mar 14 132,000 shares
14 Mar 14 171,000 shares
17 Mar 14 128,000 shares
18 Mar 14 104,000 shares
19 Mar 14 275,000 shares
20 Mar 14 259,000 shares

2. SIA has SGD 300 mio debt maturity next year and another SGD 500 mio due in 2020.  3. Coupons paid were 5 year 2.15% (retail bond) and 10 year 3.22%.
4. Dividend yield (gross) is 2.61%.

Why should I buy a 7 year at 3.145% when the probability of them returning cash to shareholders is looking high ? Which has nothing to do with the fact that I have resolved never to fly SIA again 2 years ago. And they are no longer the World’s Best and have fallen to No. 3 (guess who I am supporting too ?). http://www.worldairlineawards.com/

Today’s 7 year interest rate is 2.28% and 10 year is 2.75% so you know where you stand. Nonetheless, this bond will be a massive sell out.