Singapore Airlines (SIA), the flag carrier of Singapore, shares reportedly jumped on Wednesday following the announcement to redeem the first round of its rights mandatory convertible bonds (MCB).

Some investment firms upgraded their earnings forecasts, citing high air travel demand which also helped the stock go up.

Before finishing at $5.11, up 1.6% and representing one of SIA's greatest single-session increases in recent months, the stock increased to a $5.17 high, or 2.8%, during which 5.57 million shares were exchanged.

The firm announced that it would redeem $3.5 billion in rights MCB on December 8, 2022, which prompted the rally.

The 10-year MCBs were released in the middle of 2020 to support the firm's balance sheet while air travel almost ceased due to the coronavirus outbreak. These bonds have a $4.84 per share conversion price.

The bonds will be redeemed at 110.408% of their principal amount, totaling $3.86 billion in the payout. A potential stock dilution that might occur if bondholders eventually convert their holdings to shares will also be avoided by the redemption.

Analysts pointed out that the business has the resources to redeem both this first tranche and the second tranche of MCBs released in 2021 when it obtained an additional $6.2 billion.

According to the investment bank, the initial bond redemption is a sign that management is more hopeful about the sustainability of the ongoing rebound in passenger demand.

UBS predicted that SIA would redeem the outstanding 2021 MCBs before their scheduled maturity date of June 8, 2030, citing better operating cash flows due to a rebound in air transportation demand.

In the meantime, Citibank raised its core earnings for 2023 to $1.2 billion, up from $0.46 billion; $1.09 billion for 2024, up from $1.5 billion; as well as $1.2 billion for 2025, up from $1.1 billion.

Despite the largely positive outlook, analysts warn that the airline will likely face some challenges with cargo and a possible yield fall in 2023 as competition increases.

Source credit: https://www.straitstimes.com/business/companies-markets/sia-shares-take-off-following-mcb-redemption-announcement