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Cebu Pacific to raise $500M fresh capital to support recovery from COVID-19

Cebu Air Inc., the operator of budget carrier Cebu Pacific, announced Thursday its plan to raise $500 million (around P25 billion) additional capital to strengthen its position to recover from the adverse impact of the COVID-19 pandemic.

In a disclosure to the Philippine Stock Exchange, Cebu Air said it is seeking approval for the issuance of up to $250 million in new convertible preferred shares, as well as another $250 million in privately placed convertible bonds.

“It is envisioned that the approvals for the issuance of the preferred shares, as well as the convertible bond, will be taken up in a special shareholders meeting to take place on November 20, 2020,” the company said.

“The new convertible preferred shares will be made available to all stockholders, including JG Summit, giving opportunity for all investors to participate; while the privately placed convertible bonds, will be made available to a limited number of reputable international investors,” it said.

In the first six months of 2020, the Cebu Air recorded revenues amounting to P17.3 billion, down 61.2% from the P44.7 billion year-on-year.

The lockdowns imposed in various parts of the country led to cancellation of flights across the company’s entire network.

From March 15 to June 30, 2020 alone, around 44,000 flights were canceled and 2.1 million passengers were affected.

Cebu Air said it is operating only about 15% of its pre-COVID 19 operations.

“We need to create a longer runway for CEB so that we can continue providing affordable and accessible air transport services for everyjuan,” Lance Gokongwei, president and CEO of Cebu Pacific and JG Summit Holdings Inc., said.

Cebu Air said it is raising the additional capital as part of its multi-pronged approach to working with capital providers, creditors, suppliers and all other stakeholders, especially its employees, to further strengthen its financial position in the midst of this COVID-19 crisis. 

Since the start of this pandemic, the company said it has been working on accelerating its transformation towards becoming an even more digitalized airline, 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,” according to the company.

Gokongwei said Cebu Air is an important part of JG Summit’s investment portfolio.

“We strongly believe in the airline’s vital mission of providing fundamental and value-for-money air travel in and out our country, and its crucial role as a driver for economic growth,” he said.

The capital raising exercise represents strong support and commitment on the part of JG Summit to provide financial support to Cebu Air.

JG Summit, parent and 67% owner of Cebu Air, will invest its proportionate share of the $250 million convertible preferred share, which will be offered to existing shareholders for subscription.

The conglomerate further commits to take on any balance of unsubscribed shares in this general offering, according to Cebu. — RSJ, GMA News