Cebu Pacific to raise $500 million to navigate through pandemic
MANILA, Philippines — Cebu Air Inc. is raising “approximately” $500 million to keep the budget carrier afloat amid the tough times that hit the company while the pandemic keeps most its fleet on the ground.
Funds to be raised will be equally divided to an issuance of convertible preferred shares and a “private placement” on the firm’s bonds by an unspecified investor.
Details of the stock offer such as the price are yet to be finalized, although the Gokongwei-led firm expects shares and bonds “to be set within P38-P45 range,” representing 2% to 21% conversion premium over the shares’ 30-day weighted volume average.
“The proceeds from this Business Transformation Fundraising Plan shall be used to strengthen the balance sheet of the Corporation and for general corporate purposes,” Cebu Pacific said in a statement. Shares in Cebu Pacific closed down 1.21% to P36.65 apiece.
Raising cash is also part of a broader recovery plan, the airline said, which includes “right-sizing of network and fleet to meet demand” as well as a shift to digital services. Among local carriers, Cebu Pacific was the first to embark on a massive cut of around 25% of its over 4,300 employees as of last year.
“Due to this exceptional change in market conditions and industry dynamics, the Corporation saw the urgent need to fast track its transformation…This places the Corporation in a better position to respond to this harsh reality,” Cebu Pacific said.
Sought for comment, Luis Limlingan, managing director at Regina Capital Development Corp., a brokerage, said despite Cebu Pacific’s present financial struggles, and bleak tourism outlook amid the pandemic, investors may get enticed to buy in the offer. “I guess investors will be waiting for the rate, the higher it is the better,” Limlingan said in a text message.
“Even if CEB is struggling because of the pandemic, it has sufficient backing from JGS group,” he added. The Gokongwei family’s JG Summit Holdings has a 67.2% stake in the airline.
Due to local and international flight prohibitions brought by the pandemic, Cebu Pacific’s balance sheet slumped into the red last June with P9.14 billion in net losses. Revenues plummeted 61.2% year-on-year at the time, while a resumption of some flight activity since June has only resumed 15% of Cebu Pacific’s flight capacity in normal times as of August.
Between March 15 and June 30 at the height of lockdowns, Cebu Pacific cancelled 44,000 flights, affecting 2.1 million passengers whose requests for refunds have also drastically hit the company similar with other carriers like Philippine Airlines and the local unit of Malaysia-based AirAsia.
On Wednesday, Finance Secretary Carlos Dominguez III said the government is willing to assist struggling airlines, but fell short of wanting to rescue them. He said any state assistance will be secondary to private bank loans airlines may secure for themselves.
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