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16-05-2020, 12:36 PM
Prior to the rights issue, SIA had 1.2b shares. With the 3 for 2 rights, it now has 1.2b + 1.8b = 3b shares. The $3.5b of MCB converts -- if it does get converted -- to another 1.3b shares.
If the MCBs are converted, the converted shares will be 30% (1.3b/1.2b+1.8b+1.3b) of the enlarged number of shares. The potential dilution is not small, and so should at least be considered when evaluating the mother shares.
There is also another $6.2b of additional MCBs which may be sold, which translates to about 2.3b shares. In this case, if the MCBs are converted, the converted shares will be 45% (1.3b+2.3b/1.2b+1.8b+1.3b+2.3b) of the enlarged number of shares. It is not likely that this additional MCBs will be sold, unless the situation turns out to be much worse than expected.
The implication on the mother shares is that this 30% to 45% of potential dilution will be an overhang for a long time. The MCBs a financial obligation that in one of two ways will encumber the returns of the ordinary shareholder.
1) If SIA performs poorly and does not make enough money to even consider redeeming the MCBs, then shareholders be massively diluted when the MCBs are converted to shares. And since if SIA is not doing well, it is not likely there will be much/any dividends for shareholders. Massive dilution and no dividends = very bad for shareholders.
2) If SIA performs well enough, it will have the choice of either setting aside money to a) redeem the MCBs, or b) allowing the MCBs to convert to shares. Whether the MCBs are redeemed or converted will probably depend on whether Temasek thinks it is a good idea to take back the money to reinvest elsewhere (in which case they will redeem), or continue to ride with SIA (in which case they will convert).
b) If SIA does well and Temasek decides to convert, shareholders will be diluted. But since SIA wouldn't know whether Temasek will convert or redeem until they are close to the maturity date (10 years later), it is likely that they will be prudent with dividend payouts, if any. Low dividends and then dilution = bad for shareholders. But possibly a large dividend after conversion.
a) If SIA does well and Temasek decides to redeem, shareholders will not be diluted. But it also means the dividend payout ratio will not be high, so as to conserve cash for redemption. Lowest dividends but no dilution = not so bad for shareholders? And possibly higher dividends after redemption.
But until the recovery, which will probably take years, it is likely that shareholders will not be seeing much, if any, dividends. Since, in all three cases (1, 2a, or 2b), SIA's cashflows will be heavily encumbered by obligations to MCB holders. The company's cash will either be set aside for MCB's redemption, or if the MCBs are converted, the shareholder's share of the cash will be massively diluted.
In any case, it is likely that shareholders will not have to wait 10 years before they know if there will be a redemption/conversion, especially if the recovery is strong, say, in 5-6 years time. In which case a redemption may take place, if Temasek doesn't want to prolong the suffering of shareholders.
If the MCBs are converted, the converted shares will be 30% (1.3b/1.2b+1.8b+1.3b) of the enlarged number of shares. The potential dilution is not small, and so should at least be considered when evaluating the mother shares.
There is also another $6.2b of additional MCBs which may be sold, which translates to about 2.3b shares. In this case, if the MCBs are converted, the converted shares will be 45% (1.3b+2.3b/1.2b+1.8b+1.3b+2.3b) of the enlarged number of shares. It is not likely that this additional MCBs will be sold, unless the situation turns out to be much worse than expected.
The implication on the mother shares is that this 30% to 45% of potential dilution will be an overhang for a long time. The MCBs a financial obligation that in one of two ways will encumber the returns of the ordinary shareholder.
1) If SIA performs poorly and does not make enough money to even consider redeeming the MCBs, then shareholders be massively diluted when the MCBs are converted to shares. And since if SIA is not doing well, it is not likely there will be much/any dividends for shareholders. Massive dilution and no dividends = very bad for shareholders.
2) If SIA performs well enough, it will have the choice of either setting aside money to a) redeem the MCBs, or b) allowing the MCBs to convert to shares. Whether the MCBs are redeemed or converted will probably depend on whether Temasek thinks it is a good idea to take back the money to reinvest elsewhere (in which case they will redeem), or continue to ride with SIA (in which case they will convert).
b) If SIA does well and Temasek decides to convert, shareholders will be diluted. But since SIA wouldn't know whether Temasek will convert or redeem until they are close to the maturity date (10 years later), it is likely that they will be prudent with dividend payouts, if any. Low dividends and then dilution = bad for shareholders. But possibly a large dividend after conversion.
a) If SIA does well and Temasek decides to redeem, shareholders will not be diluted. But it also means the dividend payout ratio will not be high, so as to conserve cash for redemption. Lowest dividends but no dilution = not so bad for shareholders? And possibly higher dividends after redemption.
But until the recovery, which will probably take years, it is likely that shareholders will not be seeing much, if any, dividends. Since, in all three cases (1, 2a, or 2b), SIA's cashflows will be heavily encumbered by obligations to MCB holders. The company's cash will either be set aside for MCB's redemption, or if the MCBs are converted, the shareholder's share of the cash will be massively diluted.
In any case, it is likely that shareholders will not have to wait 10 years before they know if there will be a redemption/conversion, especially if the recovery is strong, say, in 5-6 years time. In which case a redemption may take place, if Temasek doesn't want to prolong the suffering of shareholders.