Cebu Air, Inc. (CEB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for coming to this meeting. Joining us today are the President and Chief Executive Officer; Mr. Lance Gokongwei; Chief Finance Officer, Mr. Andrew Huang; and the Corporate Secretary, Attorney Anne Tieng. May I request the corporate secretary to please certify on the sending of notices to the stockholders and to the existence of the quorum for this meeting?

Mr. Chairman, I hereby certify that the Notice of this Meeting was sent to the stockholders of record as of October 21, 2020, via the following methods: first, by delivery to the stockholders of record to their addresses, as registered in the books of the corporation; second, by posting on the website of the corporation; and third, by disclosure to the Philippine Stock Exchange. Thus, the stockholders have been notified of this meeting in compliance with applicable rules and regulations. I hereby certify that there are present in this meeting via remote communication or by proxy stockholders entitled to vote representing 87.36% of the corporation's total outstanding shares and that this meeting is therefore competent to transact the business provided for in the agenda. A quorum is present, Mr. Chairman.

There being a quorum, the special meeting of the stockholders of Cebu Air is hereby called to order. May I request the corporate secretary to share with us the rules and procedures of this meeting?

The rules and procedures are set forth in the definitive information statement and the explanation of the items in the agenda is integrated into the Notice of this Meeting. All tabulation results of this meeting are subject to validation by SyCip Gorres Velayo & Co. In case there are stockholders who are with us now during this broadcast, you may send your questions to us at our e-mail address, and we will reply to your questions. The corporation will reply to the questions and comments not taken up in this meeting through email. The e-mail address of the corporation is flashed on the screen.

Thank you, Ms. Corporate Secretary. Before we proceed to discuss each item in the agenda, requiring approval of the stockholders of the corporation, may we call on the corporation's chief finance officer to provide a general explanation regarding these items?

Thank you, Mr. Chairman. The airline industry faces significant challenges as a result of unprecedented events outside the control of the corporation, brought about by the COVID-19 pandemic. 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. In the first 9 months of 2020, the corporation recorded revenues amounting to PHP 19.3 billion, a 69.6% decline from PHP 63.6 billion generated in the same period last year. The lockdowns imposed in various parts of the country led to cancellation of flights across the corporation's entire network. From March 15 to June 30, 2020 alone, around 44,000 flights were canceled and 2.1 million passengers were affected. Today, the corporation is operating only about 15% of its pre-COVID-19 operations. Due to this exceptional change in market conditions and industry dynamics, management saw the urgent need to fast track a transformation of the corporation. It is currently implementing a business transformation exercise that involves rightsizing of the network and fleet to meet new demand and improvement of operational efficiency through process and policy enhancements and digitalization, among others. This places the corporation in a better position to respond to this harsh reality. As part of the business transformation exercise, the corporation intends to undergo a business transformation fundraising plan that will enable it to navigate the current environment and thrive in the new normal. As such, the business transformation fund raising plan aims to raise aggregate proceeds of approximately USD 500 million involving, one, a convertible preferred shares rights issue for an aggregate capital infusion of about $250 million or its peso equivalent; and two, a private placement of convertible bonds, warrants, bonds with detachable warrants or other similar security instruments with aggregate subscription price of up to USD 250 million. The proceeds from this business transformation fundraising plan shall be used to strengthen the balance sheet of the corporation and for general corporate purposes. In line with the foregoing, the Board of Directors of the corporation is seeking shareholders' approval to amend the amended Articles of the Incorporation to increase its authorized capital stock from PHP 1.340 billion to PHP 1.740 billion and create a new class of convertible preferred shares with a par value of PHP 1 per share. The proposed increase in authorized capital stock will pave the way for the proposed business transformation fund raising plan. The determination of the final terms and conditions of the convertible preferred shares, rights issue and the private placement, including the issue price, transaction size and other salient terms will be delegated to the Board of Directors. However, the conversion price of the convertible preferred shares and the convertible bonds is expected to be the same and to be set within a PHP 38 to PHP 45 range, representing 2% to 21% conversion premium over the corporation's 30-day volume weighted average price from August 26, 2020 to October 7, 2020. As an alternative to the convertible bonds, if the Board of Directors decides to issue warrants or bonds with detachable warrants, the Board of Directors will determine the final terms and conditions, but the strike price for the warrants shall be within the PHP 38 to PHP 45 range, representing 2% to 21% conversion premium over the corporation's 30-day volume weighted average price from August 26, 2020 to October 7, 2020. The corporation would also like to highlight that the proposed convertible preferred share rights issue and the private placement would be fair, transparent and equitable to all shareholders. All relevant approvals will be sought from, and appropriate disclosures would we need to, the Securities and Exchange Commission and the Philippines Stock Exchange.

Thank you, Mr. Huang. Let us now proceed to the first item in the agenda, which is the approval of the amendment of Article 7 of the Articles of Incorporation to increase the authorized capital stock of the corporation. May I call on the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the amendment of Article 7 of the Articles of Incorporation to increase the authorized capital stock of the corporation from PHP 1.340 billion to PHP 1.740 billion and to create a new class of convertible preferred shares and delegation of authority to the Board of Directors of the corporation to determine the features, rights and privileges of the convertible preferred shares.

Ms. Corporate Secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 87.35% of the corporation's total outstanding shares have approved the amendment of Article 7 of the Articles of Incorporation to increase the authorized capital stock of the corporation.

Thank you. The amendment of the Article 7 of the Articles of Incorporation to increase the authorized capital of the corporation is hereby approved. Let us now move on to the next item in the agenda, which is the approval of the amendment of Article 7 of the Articles of Incorporation to include a denial of preemptive rights for equity-linked instruments to be issued by the corporation. May I call on the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the amendment of Article 7 of the Articles of Incorporation to include the denial of preemptive rights for equity-linked instruments to be issued by the corporation, which include, but not limited to, convertible bonds, exchangeable bonds, warrants, bonds with detachable warrants and convertible preferred shares. The additional language in the denial of preemptive rights to include equity-linked instruments is intended to ensure that the private placement of the proposed convertible bond, warrants or bonds with detachable warrants for which the approval of the stockholders are being sought in this meeting can proceed as planned without the need of offering them to the stockholders first.

Corporate secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 83.96% of the corporation's total outstanding shares have approved the amendment of Article 7 of the Articles of Incorporation to include a denial of preemptive rights for equity-linked instruments to be issued by the corporation.

Thank you. The amendment of Article 7 of the Articles of Incorporation of the corporation to include a denial of preemptive rights for equity-linked instruments to be issued by the corporation is hereby approved. Let us now move on to the next item in the agenda, which is the approval for the offer or sale or subscription of the convertible preferred shares via a stock rights offering. May I call the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the offer for sale or subscription of the convertible preferred shares via a stock rights offering and the delegation of authority to the Board of Directors to determine the terms and conditions of the offering, including the transaction price, the number of shares to be offered and to engage the services of underwriters, advisers, legal counsel and other agents as maybe necessary, proper or desirable to ensure the success of the offering, as explained by the corporation's chief finance officer.

Corporate secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 87.33% of the corporation's total outstanding shares have approved the offer for sale or subscription of the convertible preferred shares via a stock rights offering.

Thank you. The offer for sale or subscription of the convertible preferred shares via a stock rights offering is hereby approved. Let us now move on to the next item in the agenda, which is the approval for the listing of the convertible preferred shares and the underlying common shares of the convertible preferred shares with the Philippine Stock Exchange. May I call the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the listing of the convertible preferred shares and the underlying common shares of the convertible preferred shares with the Philippine Stock Exchange.

Ms. Corporate Secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 87.36% of the corporation's total outstanding shares have approved the listing of the convertible preferred shares and the underlying common shares of the convertible preferred shares with the Philippines Stock Exchange.

Thank you. The listing of the convertible preferred shares and the underlying common shares of the convertible preferred shares with the Philippine Stock Exchange is hereby approved. Let us now move on to the next item in the agenda, which is the approval for the offer for sale and issuance of convertible bonds, warrants, bonds with detachable warrants or any other similar security instrument. May I call on the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the approval for the offer for sale and issuance of convertible bonds, warrants, bonds with detachable warrants or any other similar security instrument to such number of investors to be determined by the Board of Directors and the delegation of authority to the Board of Directors to negotiate and determine the terms and conditions of the issuance, including the transaction price, the terms and conditions of the issuance and to engage the services of arrangers, advisers, legal counsel and such other agents as may be necessary, proper or desirable for the transaction, as explained by the corporation's chief finance officer.

Corporate secretary, do we have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 83.96% of the corporation's total outstanding shares have approved the offer for sale and issuance of convertible bonds, warrants, bonds with detachable warrants or any other similar security instrument.

Thank you. The offer for sale and issuance of convertible bonds, warrants, bonds with detachable warrants or any other similar security instruments is hereby approved. Let's now move on to the next item in the agenda, which is the approval of the listing of the underlying common shares of the convertible bonds or warrants or bonds with detachable warrants with the Philippine Stock Exchange. May I call on the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the approval for the listing of the underlying common shares of the convertible bonds or warrants or bonds with detachable warrants with the Philippine Stock Exchange.

Corporate secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 83.96% of the corporation's total outstanding shares have approved listing of the underlying common shares of the convertible bonds or warrants or bonds plus warrants with the Philippine Stock Exchange.

Thank you. The listing of the underlying common shares of the convertible bonds or warrants or bonds plus warrants with the Philippine Stock Exchange is hereby approved. Let us now move on to the next item in the agenda, which is the approval for the listing of the warrants with the Philippine Stock Exchange in the event that the Board of Directors decide to issue warrants or bonds with detachable warrants in lieu of convertible bonds. May I call on the corporate secretary to state the proposal?

Mr. Chairman, the corporation is proposing the approval for the listing of the warrants with the Philippine Stock Exchange.

Corporate secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 83.96% of the corporation's total outstanding shares have approved the listing of the warrants with the Philippine Stock Exchange.

Thank you. The listing of the warrants with the Philippine Stock Exchange is hereby approved. Let us now move on to the next item in the agenda, which is the waiver to the requirement to conduct a rights or public offer in the event that the holders of the convertible bond, warrants, bonds with detachable warrants and convertible preferred shares will result in the issuance of at least 10% of the corporation's total issued and outstanding shares. May I call on the corporate secretary to explain the proposal?

Mr. Chairman, the corporation is proposing the waiver of the requirement to conduct the rights or a public offer in the event that the holder of the convertible bonds, warrants, bonds with detachable warrants and convertible preferred shares will result in issuance of at least 10% of the corporation's total issued and outstanding shares pursuant to Article 5, Part A of the Philippine Stock Exchange Revised Listing Rules.

Corporate secretary, do you have the results of the voting for this item?

Mr. Chairman, after tabulating the votes, we are pleased to report that stockholders representing 83.96% of the corporation's total outstanding shares and stockholders representing 82.54% of the minority interest present or represented in this meeting have approved the waiver of the requirement to conduct a rights or public offer in the event that the holder of the convertible bonds, warrants, bonds with detachable warrants and convertible preferred shares will result in the issuance of at least 10% of the corporation's total issued and outstanding shares.

Thank you. The waiver of the requirements to conduct a rights or public offer in the event that the holder of the convertible bonds, warrants, bonds plus warrants and convertible preferred shares will result in the issuance of at least 10% of the corporation's total issued and outstanding shares is here by approved. Are there any other matters to be taken up for consideration of the shareholders or the stockholders?

There are none, Mr. Chairman.

This ends the special stockholders' meeting of Cebu Air, Inc. A replay of this meeting may be viewed through a link at the website of the corporation. Thank you very much for joining.