SIA / Tiger Air: halted lifted at 9am this morning for both companies.
SIA”s 32.8% associate Tiger Air has proposed a 1-for-2 renounceable rights issue to raise $158.6m at $0.58/sh. The exercise is expected to be completed by mid-Nov ’11, subject to sh/h approval at an EGM.
SIA and Temasek have committed to take up their rptv allocated rights, and will subscribe the excess rights up to 90% of the issue. In such a case, SIA’s stake in Tiger will rise to 49%. The joint mgr, DBS and StanChart will underwrite the remaining 10% of share issue.
With the new equity, gearing will fall from an estimated 3.7x to 1.5x for FY11, strengthening the equity base of the carrier and removing funding concern on the stock (recall Tiger has to partially finance the payments for its committed orders of aircraft through 2015).
We expect that the steep 39% discount of the rights issue price to last traded price of $0.955 will not sit well with minority sh/h. Expect investor confidence in mgt to be shaken, as Tiger mgt in the past, had always insisted that there would be no need for equity fund raising within 3 yrs of IPO. Nevertheless, this should not come entirely as a surprise, as a number of analysts have highlighted this risk since the latest results.
CIMB maintains its Underperform rating, with ex-rights TP at $0.46. Notes Tiger’s widening gap with peers, as it struggles to catch up with AirAsia and Jetstar, which are expanding into the Philippines and Japan rptvly, while Tiger is still recovering from its suspension in Australia.
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