Cebu Air Inc., the firm behind carrier Cebu Pacific, has set the final price range for its planned P12.5 billion rights offering of convertible preferred shares at P38.00 per entitlement right.

    In a disclosure to the Philippine Stock Exchange, Cebu Air said it is offering 328.95 million cumulative, non-voting convertible preferred shares at the rate of one entitlement right for every 1.825 CEB common share.  

     The ex-rights date for the stock rights offering has been set on February 22, 2021 and the record date on February 26. The SRO will run from March 3 to March 9, 2021 with the tentative listing date on March 29, 2021.

     Cebu Air intends to use the net proceeds from the Offer to strengthen its balance sheet by providing liquidity to address its financial liabilities.

These include P4.805 billion allocation for repayment of an advance by JG Summit Philippines Ltd.; P3.913 billion allocation for aircraft operating lease payments due in 2021; P3.328 billion allocation for principal debt repayments due in 2021; and P0.384 billion allocation for general corporate purposes.

The allocation for general corporate purposes are primarily for passenger refunds in case cash inflows from operations become insufficient as a consequence of the COVID-19 pandemic’s impact to health and travel related concerns.

However, the firm said “The plans may change based on factors including changing market conditions or new information regarding the cost or feasibility of the plans. The Corporation's cost estimates may also change as actual costs may be different from the budgeted costs.”

For these reasons, Cebu Air said it may be necessary or advisable to reallocate the net proceeds or to alter the plans, including the abandonment of the projects for pursuit of different projects.

The SRO is half of Cebu Air’s plan to raise about US$500 million from the issuance of convertible bonds and preferred shares.

The firm said its shareholders approved the issuance of warrants or bonds with detachable warrants, or other similar security instrument as an alternative to the convertible bonds.

The Convertible Preferred Shares and the underlying common shares of the Convertible Preferred Shares will be listed with the PSE.

The fund raising is part of the firm’s business transformation plan to deal with the hard realities brought about the global health crisis.

Cebu Air noted that, “The airline industry faces significant challenges as a result of unprecedented events outside the control of the Corporation brought by the COVID-19 pandemic.”

 It added that, “Travel restrictions imposed by various governments, both local and abroad, have led to abrupt reduction in passenger traffic for the Corporation and casts uncertainty over the near term prospects of the Corporation despite its market leadership.”

“Due to this exceptional change in market conditions and industry dynamics, the Corporation saw the urgent need to fast track its transformation,” Cebu Air said.

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, among others.