Cebu Pacific proceeds with $250-million stock offer to raise cash
MANILA, Philippines — Gokongwei-led Cebu Air Inc. is pushing through with plans to raise funds through a stock offering next month and keep the loss-making airline afloat while lingering coronavirus fears prevent a full take off from pandemic woes.
The $250 million worth of convertible preferred shares to be sold is part of a larger rescue package worth $500 million the airline announced last October, which also includes a private investor placement of equal amount. It was unclear whether the balance had been raised already.
“Due to this exceptional change in market conditions and industry dynamics, the Corporation saw the urgent need to fast track its transformation,” Cebu Air said in a disclosure to the local bourse on Monday.
“It is currently implementing a business transformation exercise that involves right-sizing of network and fleet to meet new demand, and improvement of operations efficiency through process and policy enhancements and digitalization, among others. This places the Corporation in a better position to respond to this harsh reality,” the company explained.
Investors welcomed the news. Shares in Cebu Air opened the trading week rallying 2.59% to close at P51.40 each.
The Board of Directors is yet to decide the number of shares that would be sold, although it already set the offer price at a range of $0.74-$0.84 per share. The sale will run from February 26 until March 4.
Broken down, $100 million of the net proceeds would be allocated for repayment of an advance by Cebu Air's parent, JG Summit Philippines Ltd., while $71.3 million would go to lease payments for aircrafts that are due this year.
A bigger $72.3 million would be earmarked to repay old debts maturing in 2021 while the balance of $6.4 million would be used to finance passenger refunds in case cash flows from lackluster operations become insufficient to settle them.
“The proposed Convertible Preferred Shares stock rights offering would be fair, transparent and equitable to all shareholders,” Cebu Air said.
The local airline industry is already expecting a long haul to recovery as contagion fears continued to cripple travel demand despite restrictions getting eased since June and leisure travel getting allowed in October.
Unlike foreign governments that provided bailouts to their cash-strapped carriers like Malaysia and Thailand, the Duterte administration has been reluctant in spending taxpayers’ money to rescue local airlines on the brink of financial collapse.
Although the company is yet to release its full-year financial results, Cebu Pacific already expects losses to amount to “almost P25 billion” in 2020 that, if realized, this will be a reversal of the P9.12 billion in net income posted in 2019.
Apart from raising new funds, Cebu Air was also forced to downscale workforce by 75% of its manpower last year due to the health crisis.
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