CEB (Cebu Pacific) almost out of cash, pandemic makes it a potential money pit for the Gokongwei group

Cebu Air, Inc. (CEB) is an airline that operates under the trade name “Cebu Pacific Air” and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in the local aviation industry by providing scheduled air travel services targeted to passengers who are willing to forego extras for fares that are typically lower than those offered by traditional full-service airlines while offering reliable services and providing passengers with a fun travel experience.

As of September 30, 2020 CEB, had a cash balance of 3.6 Billion Pesos and a restricted cash of 1 Billion Pesos. CEB started the year with a cash balance of 18.2 Billion Pesos.

For the nine-month period ending September 30, 2020, CEB suffered a comprehensive net loss of 15 Billion Pesos.  That comprehensive net loss translated to a cash burn on operating activities of 9.7 Billion Pesos for the nine-month period.

With liquidity under pressure, JG Summit Holdings (JGS) and CEB initiate to recapitalize CEB by raising US$500 Million from US$250 Million convertible preferred shares through a stock rights offering and from USD$250 Million convertible bonds, warrants, or bonds with detachable warrants. JGS will be subscribing to its share of the stock rights and will be taking the unsubscribed rights effectively pouring in money to CEB.

The US$500 Million at current conversion will be worth around 24.2 Billion Pesos.  How far will that 24.2 Billion Pesos go? As of the end of 9M20, CEB has a total current liability of 37.8 Billion Pesos while current assets are only at 11.4 Billion Pesos leaving a net total current liability of 26.4 Billion Pesos. That net current liabilities of 26.4 Billion Pesos needs to be funded in the near-term.  The 24.2 Billion fundraising may just be gobbled up by near-term funding requirements.

The Gokongwei group may have to throw-in more money to CEB to help CEB stay in the air.  With no clear indication of when the pandemic will be under control, CEB will continue to burn cash and money must be thrown-in to help it stay in the air.  In good times CEB is a cow for the JGS group. But right now, CEB is fast becoming a money pit for the Gokongweis’ JG Summit Holdings.

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Disclaimer and Disclosure: This analysis is an independent viewpoint on publicly traded stocks in the Philippine market.  Accuretti Systems Inc. trades stocks in the Philippine market.

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