Cebu Air, Inc.CEB

Stock Rights Offering of Convertible Preferred Shares

On October 7, 2020, the Board of Directors of Cebu Air, Inc. (the "Corporation") approved the:

1. Offer for sale or subscription of the Convertible Preferred Shares via a stock rights offering and 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, advisors, legal counsel, and other agents as may be necessary, proper or desirable to ensure the success of the offering; and

2. Listing of the (a) Convertible Preferred Shares and the (b) underlying common shares of the Convertible Preferred Shares with the Philippine Stock Exchange (“PSE”);

The airline industry faces significant challenges as a result of unprecedented events outside the control of the Corporation brought 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.

Due to this exceptional change in market conditions and industry dynamics, the Corporation saw the urgent need to fast track its transformation. It is currently implementing a business transformation exercise that involves right-sizing of network and fleet to meet new demand, and improvement of operations 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 fundraising plan (the “Business Transformation Fundraising Plan”), which will include, among others, a Convertible Preferred Shares stock rights offering for an aggregate proceeds of about USD250.0 million (or its equivalent in Philippine Peso).

The proposed Convertible Preferred Shares stock rights offering would be fair, transparent and equitable to all shareholders. All relevant approvals will be sought from, and appropriate disclosures would be made to, the Securities and Exchange Commission and the Philippine Stock Exchange.

The stockholders approved the following at the Special Stockholders' Meeting held on 20 November 2020:
1. Offer for sale or subscription of the Convertible Preferred Shares via a stock rights offering and 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, advisors, legal counsel, and other agents as may be necessary, proper or desirable to ensure the success of the offering, which was approved by stockholders representing 87.33% of the total outstanding capital stock of the Corporation; and
2. Listing of the (a) Convertible Preferred Shares and the (b) underlying common shares of the Convertible Preferred Shares with the Philippine Stock Exchange (“PSE”), which was approved by stockholders representing 87.36% of the total outstanding capital stock of the Corporation.

This disclosure is being amended to indicate the offer terms.

The Corporation intends to use the net proceeds to strengthen the Corporation’s balance sheet by providing liquidity to address its financial liabilities which include: (a) $100M allocation for repayment of an advance by JG Summit Philippines Ltd. (“JGSPL”); (b) $71.3M allocation for aircraft operating lease payments due in 2021; (c) $72.3M allocation for principal debt repayments due in 2021; and (d) $6.4M allocation for general corporate purposes, which are primarily for passenger refunds in case cash inflows from operations become insufficient as a consequence of the COVID-19 pandemic’s impact to health and travel related concerns.

The foregoing discussion represents a best estimate of the use of proceeds based on the Corporation’s current plans and anticipated expenditures. The plans may change based on factors including changing market conditions or new information regarding the cost or feasibility of the plans. The Corporation’s cost estimates may also change as actual costs may be different from the budgeted costs. For these reasons, the Corporation may find it necessary or advisable to reallocate the net proceeds with the categories described above, or to alter the plans, including the abandonment of the projects described above and/or pursuit of different projects.

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