Cebu Pacific raising $500 million via preferred shares, bonds

MANILA, Philippines — Cebu Air Inc., the operator of the country’s largest budget carrier Cebu Pacific, plans to raise up to $500 million in fresh capital through the issuance of convertible preferred shares and the private placement of convertible bonds to strengthen its balance sheet as the aviation industry continues to face headwinds brought about by the COVID-19 pandemic.

The fundraising exercise, which is seen to “enable the company to navigate the current environment and thrive in the new normal, “will involve the issuance of up to $250 million in new convertible preferred shares, as well as another $250 million in privately placed convertible bonds.”

The new convertible preferred shares will be made available to all stockholders, including parent JG Summit Holdings Inc., while the privately placed convertible bonds will be made available to a limited number of reputable international investors.

Lance Gokongwei, president and CEO of Cebu Pacific and JG Summit, said the convertible preferred shares are for existing shareholders, underwritten by JG Summit, while the convertible bonds are for new investors.

JG Summit, 67 percent owner of Cebu Pacific, will invest its proportionate share of the $250 million convertible preferred share, which will be offered to existing shareholders for subscription.

The parent firm has further committed to take up any balance of unsubscribed shares in the general offering.

“We need to create a longer runway for Cebu Pacific so that we can continue providing affordable and accessible air transport services for every Juan,” Gokongwei said.

Cebu Pacific said the issue price of the offerings would be decided based on various factors, including the prevailing market price at such relevant time, and the broader equity capital market conditions.

It said the conversion price of the preferred shares and the bonds is expected to be set within the P38 to P45 range.

Proceeds from the fundraising plan will be used to strengthen the company’s balance sheet and for general corporate purposes.

The company is raising this capital as part of its multi-pronged approach to working with capital providers, creditors, suppliers and all other stakeholders, especially its employees, to further strengthen its financial position in the midst of the COVID-19 crisis.

“The airline industry faces significant challenges as a result of unprecedented events outside the control of the corporation brought by the COVID-19 pandemic. Travel restrictions imposed by various governments, both local and abroad, have led to an abrupt reduction in passenger traffic for the corporation and casts uncertainty over the near term prospects of the corporation despite its market leadership,” Cebu Pacific said.

The airline posted a P9.14 billion net loss in the first half, with revenues plunging by 61.2 percent to P17.33 billion due to the impact of the pandemic.

Due to the exceptional change in market conditions and industry dynamics, the company said it saw the urgent need to fast-track its transformation.

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.

“This places the corporation in a better position to respond to this harsh reality,” it said.

Cebu Pacific expects the approvals for the issuance of the preferred shares and the convertible bond to be taken up in a special shareholders meeting to take place on Nov. 20.

In line with the planned issuance, Cebu Air’s board of directors is seeking shareholders’ approval to increase the company’s authorized capital stock from P1.34 billion to P1.74 billion and create a new class of convertible preferred shares with a par value of P1 per share.