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​Sats' S$1.6m share buybacks beg question of prudence

Published on: 24-Apr-2020

​Listed ground handler and inflight caterer Sats spent nearly S$1.6 million on share buybacks in the first week of April, giving rise to questions over the prudence of the cash expenditure at this time.

Sats repurchased 535,000 shares over five trading sessions between April 1 and April 7, enlarging its treasury stock pool to 6.4 million shares from 5.8 million shares, according to the company's regulatory filings with the Singapore Exchange (SGX).

A Sats spokesperson told The Business Times that it is obliged to issue three million to four million shares per year out of its treasury stock pool to managers and senior management, pursuant to its share award scheme.

The spokesperson said: "We adopt a prudent and systematic approach to replenish our treasury shares regularly at the lowest cash cost possible to fulfil this obligation. To date, the amount deployed is insignificant."

Sats' share price has declined 40.1 per cent year-to-date. It closed at a multi-year low of S$2.58 on March 23, before recovering in the recent rally.

Some market-watchers have questioned the cash-depleting share buybacks when the company is cutting costs to ride out the coronavirus pandemic as well as receiving sizeable wage subsidies from the state.

Nanyang Business School associate professor Chong Beng Soon thinks that it is not an issue as long as taxpayers' money is used directly to save jobs.

Of greater concern, he said, is Sats' cash flow position. He told BT that he expects Sats' cash flow from operations to be badly affected by the near-shutdown in the travel industry due to the coronavirus.

Prof Chong noted that consecutively in FY2018 and FY2019, Sats' after-tax net cash flow from operating activities were not enough to cover its cash needs for investing and financing. The cash used for financing activities has mostly been for dividend payments.

Cash flow from operations in the last quarter of FY2020 and the first quarter of FY2021 are not going to look good and may be negative, he pointed out. 
"Hence, the firm's cash position is going to be critical in surviving the crisis."

Cash from a recent S$200 million debt issue will help bolster Sats' liquidity position, said Prof Chong.

Nonetheless, he thinks that Sats' large dividend payments in the past few financial years may not be sustainable. Its cash holdings have declined from S$506 million as at end-FY2017 to S$350 million as at end-FY2019 and S$212 million as at end-Q3FY2020.

A chartered accountant and partner at RSM Singapore, Lock Chee Wee, said that it boils down to what Sats' priorities are, in this difficult time. 

While he noted that Sats might be contractually obliged to award the shares to its top employees, he said that the company could have negotiated with the intended recipients and deferred the issuance. 

Further, it could have also been more transparent with its shareholders and explained its move.

According to Credit Suisse, the sharp withdrawal of demand arising from expanding border restrictions and major airlines slashing capacity will affect Sats' aviation business. 

It expects Sats to rack up operating losses in FY2021 as a result of high fixed costs and the likely absence of government support at its overseas associates.

Sats is getting support from the Singapore government, including subsidies of 75 per cent of monthly wages of up to S$4,600 per local worker for nine months through the end of the year.

It was among the first of the locally listed companies directly hit by the virus outbreak to introduce pay cuts for its managers and senior management, as well as a cut in directors' fees. 

It took these cost-cutting measures alongside offering voluntary early retirement and no-pay leave for general employees. 
Sats closed one Singapore cent or 0.33 per cent down at S$3.03 on Thursday.


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