$SINGAPORE AIRLINES LTD(C6L.SI)$
SIA will be redeeming the first tranche of its MCBs (S$3.5bn) at the accreted principal amount, being 110.4% of the principal amount (2.5 years of accumulated interest) in December-22. SIA is expected to redeem the first tranche of its MCBs in 2023 (FY24), given that the step-up in yield on the MCB is slated to only occur in in 2024 (FY25).
Early redemption of the MCBs is supported by SIA's substantial cash position (S$16.1bn of cash as of June-22, but the amount is likely to be higher now) and significant improvement in operating cash flows. This suggests that the management team is optimistic on SIA's outlook.
Additionally, this also substantiates the assumption of resumption of dividend payments (dividends per share expected to be at 20Scts in FY23; implied dividend yield of 4.0% at current share price levels) in FY23.
The redemption of the next tranche of its MCBs will occur sooner rather than later (even though the step-up in interest rates will only occur in 2025(FY26)), given the strong financial position and solid medium-term prospects of the group.
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