Cebu Pacific to raise $500 million in fresh capital
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Cebu Pacific announced plans to raise up to $500 million in additional capital — by selling preferred shares and bonds — as it undertakes a restructuring exercise that sees it cut its fleet and network to cope with reduced travel demand.
The Philippine low-cost carrier discloses that it will raise up to $250 million in new convertible preferred shares and another $250 million in a private placement of convertible bonds.
Proceeds from the recapitalization exercise, subject to shareholder approval by November, will help strengthen the carrier’s balance sheet, it adds.
It also comes as part of a wider business transformation exercise that the carrier is undertaking.
Like many carriers in and around the region, Cebu Pacific has acutely felt the impact of the coronavirus outbreak, which has seen travel restrictions crimp demand.
It notes that it is only operating about 15% of pre-pandemic capacity. For the first six months of the year, Cebu Pacific reported a 61% year-on-year decline in revenue, at Ps17.3 billion ($357 million).
It also reported an operating loss of Ps6.29 billion for the quarter ended 30 June, widening the Ps693 million loss incurred in 2020’s first quarter.
“Due to this exceptional change in market conditions and industry dynamics, [Cebu Pacific] saw the urgent need to fast track its transformation. It is currently implementing a business transformation exercise that involves the right-sizing of network and fleet to meet new demand, and improvement of operations efficiency through process and policy enhancements and digitalization, among others,” the carrier discloses.
Cebu Pacific adds that since the start of the pandemic, it has been accelerating efforts in digitalization, “resulting in a significantly reduced unit cost, allowing the carrier to continue offering affordable air travel”.
“This capital raising exercise will provide the airline with the needed runway to withstand the financial challenges it faces as it slowly goes back to pre-Covid business levels and settles into the ‘new normal’,” it states.
Questions & Answers
Q.How will Cebu Pacific raise the new capital?
How will Cebu Pacific raise the new capital?
The carrier plans to raise up to $250 million by selling new convertible preferred shares. A further $250 million will be raised through a private placement of convertible bonds, bringing the total to $500 million.
Q.What is the primary purpose of this capital-raising exercise?
What is the primary purpose of this capital-raising exercise?
The proceeds from this recapitalization will help to strengthen Cebu Pacific's balance sheet. It is also part of a wider business transformation aimed at coping with reduced travel demand.
Q.How has the pandemic impacted Cebu Pacific's financial performance?
How has the pandemic impacted Cebu Pacific's financial performance?
Cebu Pacific reported a 61% year-on-year revenue decline for the first six months of the year, to Ps17.3 billion. They also saw an operating loss of Ps6.29 billion for the quarter ended 30 June.