Singapore Airlines Limited (SIA) last Friday announced that it had entered into an irrevocable undertaking with regards to the rights issue of Tiger Airways Holdings Limited (Tigerair). SIA currently holds a 40% stake [~394.6m ordinary shares and 189.4m nonvoting perpetual convertible securities (PCCS)] in Tigerair. As part of its undertaking, SIA will be converting all of its PCCS into 358.7m new Tigerair shares at a price S$0.565 per share, bringing its stake in Tigerair up to ~55% before the rights issue, effectively taking control over Tigerair.

As part of the Whitewash Resolution of PCCS, SIA is not required to make a general offer and has no intention to do so. Furthermore, SIA also undertakes to subscribe in full its pro rata entitlement (~55%) of the rights issue as well as any excess rights up to a total of S$140m.

Buying Tigerair’s shares at a significant premium is probably a strategic move to gain control to align Tigerair’s direction with Scoot as well as to participate in the rights issue with a larger base. As the Tigerair’s rights issue is still in its proposal stage, we continue to maintain our HOLD rating with unchanged fair value estimate of S$10.05 on SIA.

Source: OCBC Research - 20 Oct 2014