Investing
Singapore Airlines SIA Retail Bond 2019 – My Thoughts
Chris Lee Susanto, Founder at Re-ThinkWealth.com
20 March 2019
Singapore Airlines retail bond application starts from 20 March 2019, 9 am, to 26 March 2019, 12 pm.
The purpose of this article is to give readers my quick thoughts/opinion on the pros and cons of SIA retail bonds 2019.
1. What is it?
Based on SIA official website, this is the detail of the bonds.
Simply put, SIA as an airline, needs to purchase new aircraft once every few years. Usually, this is done to make sure the fleet of aircraft they are using continue to operate efficiently.
Instead of using their own cash to purchase, they can either raise more equity by issuing more shares or by taking on debt. In this case, they decide to take on debt, not from a bank, but from retail investors.
In return for funding SIA for their capital expenditures, the public bond investors are promised a fixed interest of 3.03% per year.
2. The Pros of SIA Retail Bond 2019
SIA has great branding in the airline industry.
It is relatively easy for any retail investors to take part. Because the minimum sum is not high at a multiple of $1,000.
It is also easy to apply as we can do it through ATMs of DBS/POSB, OCBC, and UOB. As well as through internet banking of the participating banks. We can even apply via mobile banking applications if we have a DBS account.
The application fee is also relatively low at $2 per application.
Investors are paid two times a year, on 28 March and 28 September of each year until the maturity date of the bonds,
Interest derived from the bonds is also exempted from tax in Singapore.
There is liquidity because the bonds can be bought and sold in the market once it is listed and quoted on the main board of SGX-ST starting 29 March 2019 9 AM.
3. The Cons of SIA Retail Bond 2019
3.03% as essentially SIA cost of debt for this retail bond excluding fees they paid to DBS for helping to issue this, While this may seem low, their return on equity over the past years is not encouraging.
Image source; SGX
SIA return on equity for FY 2015 is 3.069%, 6.536% for FY 2016, 3.322% for FY 2017 and 6.67% for FY 2018. Their Last Twelve Months ROE is at 2.897%.
ROE is a sign of a company’s profitability. While on average, their return on the investor’s equity is higher than the 3.03% of the cost of debt they promise to pay to bondholders, it doesn’t seem to be of a huge enough margin of safety in terms of its profitability.
Image source; SGX
Imagine this: SIA earned below 3% in the last twelve months for both returns on capital and equity. And a whole 3.03% will be paid on a yearly basis to bondholders.
This is a simple analysis that highlights one fact: SIA is in need of money to buy new aircraft and they did not fund this capital expenditure through just from their retained earnings, they needed to raise more debt for it.
Image source: SGX
That is despite the fact as you can see above, they already have over 20 times more debt than equity n FY2018 to capitalize their operations. And over 40 times based on the last twelve months.
Last but not least, The SIA retail bond 2019 is not rated.
4. In Summary
In summary, while SIA has great branding and is a Singaporean pride, the airline industry is ruthless. With the rise of budget airlines and ease of price comparison, SIA has clearly suffered in terms of profitability as you can see from its low ROE and ROC return. And have been funding its operations primarily through debt for quite some time. A debt of equity above 50% to me is bad enough, 20 times, 40 times? It is not sustainable in my humble opinion.
The SIA retail bond 2019 is currently not for me based on the above points I have written down. But for many, it can be a way to diversify their holdings. Furthermore, the low minimum sum and ease of investment are other pros to it. Plus, I do not think SIA will go down like Hyflux, but when buying a retail bond, I believe it is also important to at least understand what is going on behind the company’s fundamentals.
Cheers!
Corrections
I have double checked with the SIA official latest SGX filings. SIA long term debt to equity ratio is at about 0.4 or 40% (in a good position in my opinion) instead of 40 times as the article stated earlier (that was derived from looking at the SGX stock screener).
Disclaimer:
The information provided is for general information purposes only and is not intended to be a personalized investment or financial advice.
Important: Please read our full disclaimer.
Further Learning or Doing
- Our Telegram Channel – You can get daily updates on stocks, business, economy, and value investing knowledge from us here.
- Our Value Investing Mentorship Program – Individuals looking to learn skills to become better investors can join our effective and exclusive course, taught via one-on-one mentorship, here.
Read also now:
Here are the key principles of value investing | Re-ThinkWealth
The first value investing principle focuses on a company’s intrinsic value. This means looking beyond its market price and considering its […]
Understanding the Margin of Safety in Value Investing
One of the key concepts of value investing is the margin of safety, which is used to potentially reduce the risk of loss in investing in case of…
The Warren Buffett Approach to Value Investing
Based on the Oxford dictionary, value stocks are shares of a company with solid fundamentals that are priced below those of its peers, based …
8 Tips on Life and Investment from Charlie Munger
Based on the Oxford dictionary, value stocks are shares of a company with solid fundamentals that are priced below those of its peers, based …
The Definition and Important Good Characteristics of Value Stocks
Based on the Oxford dictionary, value stocks are shares of a company with solid fundamentals that are priced below those of its peers, based …
The Ultimate List of Investing Resources in Singapore (Updated 2022)
Being an avid follower of many investments and finance blogs/websites/resources in Singapore, I thought, why not create an article sharing the…
Here Are 3 Powerful Lessons Investors Can Adopt from Roger Federer
“There is no way around the hard work. Embrace it.” – Roger Federer. In investment, it is important to continue “turning the stones” or keep finding […]
What is Truth Social, Mr. Trump’s Social Media Company?
Truth Social was launched in February 2022. More than one year after Donald Trump was banned from most social media platforms.
The Three US Stocks That Big Funds Are Buying: Booking, Alphabet & Microsoft
The three US stocks that the big fund managers are buying includes Booking Holdings Inc, Alphabet Inc and Microsoft Corp.
Rebranding of VIM logo to communicate our Values better
VIM/Value Investing Mentorship is an investment education […]
Here’s The Value Investing Strategy Warren Buffett Uses In Bear Market
In this article, I will be sharing the value investing strategy and philoso […]
STI ETF: Historical Returns, Dividends, Investment Prospects in 2022
STI ETF or Straits Times Index is the index of the top 30 companies listed in […]
WeWork: Would An Investment in WeWork Have Worked Out?
WeWork looming bankruptcy. But would an investment in WeWork have worked out, ever? In this article, we look into the story and …
A Beginner’s Guide to Value Investing in Singapore
Value investing is an investment strategy that seeks to buy stocks that are trading below their intrinsic value. This means that the stock is …
Finding True Wealth: Achieving Peace of Mind and Balance in Life
Tony Robbins says that the quality of your life is directly proportional to the amount of uncertainty you can comfortably live with. The key is …
Mastering Risk vs. Return in Investing | Re-ThinkWealth
Risk and return are two of the most important concepts in investing. The relationship between these two factors is crucial to understanding […]
Here are the key principles of value investing | Re-ThinkWealth
The first value investing principle focuses on a company’s intrinsic value. This means looking beyond its market price and considering its […]
Understanding the Margin of Safety in Value Investing
One of the key concepts of value investing is the margin of safety, which is used to potentially reduce the risk of loss in investing in case of…
The Warren Buffett Approach to Value Investing
Based on the Oxford dictionary, value stocks are shares of a company with solid fundamentals that are priced below those of its peers, based …
8 Tips on Life and Investment from Charlie Munger
Based on the Oxford dictionary, value stocks are shares of a company with solid fundamentals that are priced below those of its peers, based …
While I’m not one to advocate for buying the SIA bond, the fact that you say SIA’s debt/equity is 40 times is a gross and very substantial error.
You need to rewrite this article and not hash out bad articles just for content within 30 minutes.
I have actually made the correction on the day itself on 20 March 2019.
Thank you for your feedback.
It is appreciated.
Hi! Thanks for the writeup! I have a question regarding the use of ROE to measure profitability in the context of a debt holder. ROE can increased by increasing financial leverage. While this may increase returns for equity holders, I’m not sure if this would benefit debt holders (given they may now have more competing claims on assets, depending on seniority of debt held). Hence would ROE be the best measure of profitability to a debt holder? Or would something like net and operating margins be a better measure?
Thanks for taking the time to answer! Apologies if there are any misconcepts I have since I recently started learning about investing
Hey There! It’s better if I answer you directly via a WhatsApp call? Can arrange a free session with me at VIMClub.sg. Cheers.