All set for Cebu Pacific operator's crucial stock offer to rescue airline

MANILA, Philippines — It's all systems go for the upcoming P12.5-billion stock rights offer of Cebu Air Inc. next month.

In a disclosure to the local bourse on Wednesday, the operator of loss-making budget carrier Cebu Pacific released the final terms for the fundraising activity meant to keep the airline afloat while lingering coronavirus fears prevent a full take off to recovery.

The mega stock rights offer is part of a larger recovery plan worth $500 million that the airline announced last October, which also included a private investor placement of equal amount. It was unclear whether the balance had been raised already.

Under the offer, existing common shareholders may buy convertible preferred shares at a conversion price of P38 apiece. Preferred shareholders are entitled to receive fixed dividends with a yield of 6% per year, but they will not have voting rights that common stockholders enjoy.

Shares will be sold from March 3 to 9, while a tentative listing date was set on March 29. Cebu Air will sell a total of 328.9 million convertible preferred shares to investors for this crucial fundraising activity.

A chunk of the proceeds worth P4.8 billion will serve as repayment to advances by JG Summit Philippines Ltd., its parent firm. A smaller P3.9 billion would go to aircraft operating lease payments due this year, while P3.3 billion would settle old debts.

The balance of P384 million would be spent on "general corporate purposes," primarily for passenger refunds in case cash generated from lackluster operations are insufficient for settlement.

Unlike regional counterparts that handed bailouts to their cash-strapped carriers like Malaysia and Thailand, the Philippines has been reluctant in spending taxpayers’ money to rescue local airlines on the brink of financial collapse.

Although Cebu Air is yet to release its full-year financial results, the airline has expected losses to amount to “almost P25 billion” in 2020 that, if realized, will be a reversal of the P9.12 billion in profits in 2019.

Apart from raising new funds, Cebu Air was also forced to downsize its workforce by 75% last year due to tepid flight operations.  

On Wednesday, shares in Cebu Air lost 1.18% to close at P50.10 each.