Singapore Airline (SIA) Rights Issue and MCB 2021: Is it worth subscribing?

The SIA MCB 2021 is a zero coupon bond. This means that when you put in $100, you will not get any payout till it is ‘redeemed’. The Bond is for a duration of 10 years, but SIA can redeem the bond at any time within the 10 years based on the following:
– 4% for year 1 to 4
– 5% for year 5 to 7
– 6% for year 8 to 10

If SIA does not redeem the bond by year 10, it will be converted into SIA stocks.

So that’s the MCB. Seems to be pretty simple. Personally, I am giving this MCB a miss for the following reasons.

While the interest rate is fairly decent, this is a bond which can be redeemed anytime. Essentially, if the economy is good, you get less interest. If the economy is bad, you get more interest. But you may get paid in shares. Being paid in shares means that the shares will be diluted and that each share may potentially be worth less in the longer run.

The second reason is that airlines will take a really really long time to recovery. Given how the COVID virus is mutating, travelling may never be the same again. The idea of packing as many people as possible in an aircraft flying over long periods may be something of the past. For people hoping that SIA will recover to it’s former glory, it may take a really long time.

So all in all, I think my money is better invested in something that has a higher potential for growth over the next 10 years. There are currently many good choices including Pharma companies, tech stocks or even metals and minerals. This is my 2 cents worth.

Kilt Lee
The opinion are personal thoughts and should not replace official financial advice.

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