Singapore Inc faces $12 bln debt scramble

Ezra Holdings

30/10/2016 23:00

* US$12.4 billion of Singapore bonds fall due by end-2017 
    * Banks pulling back as non-performing loans rise 
    * Third of companies highly leveraged at 10+ x core profit 
    * Bond issuers exposed to struggling commodities market 
 
    By Umesh Desai 
    HONG KONG, Oct 31 (Reuters) - Singapore companies, highly 
exposed to slowing global trade and a lacklustre commodity 
market, face a financing scramble in 2017, as more than US$12 
billion of their bonds falls due and banks grow wary of lending 
to the resources sector. 
    That could trigger more blood-letting in a market that has 
already seen some high-profile corporate defaults, such as oil 
services firm Swiber Holdings  SWBR.SI , which hit the skids in 
July and went into judicial management this month. 
    It has also seen an increase in the number of bond issuers 
trying to renegotiate the terms of their credit to stay afloat, 
a disturbing signal in a market skewed to retail buyers and 
smaller issues subject to light scrutiny. 
    Corporate leverage has risen to increasingly risky levels, 
according to credit analysts and investors, while banks are 
becoming more circumspect about extending financing as the 
quality of their loan books causes concern. 
    Between now and the end of 2017, according to Reuters data, 
US$12.4 billion of bonds falls due, but corporate balance sheets 
in the city state are looking strained. 
    A Reuters study of 228 non-financial companies' half-year 
earnings shows that 74 had net debt more than five times their 
core profit, a level that usually prompts concern among credit 
analysts, and more than a third of that group were at least 
twice that level. 
    "We had not seen Singapore dollar corporate defaults since 
2009, but suddenly we see a pick-up in defaults in 2015-2016. 
This is a warning sign about a refinancing confidence crisis 
across many sectors, not just commodity-related ones," said 
Raymond Chia, Head of Credit Research for Asia ex-Japan at 
Schroders Investment Management. 
     
    LIGHT SCRUTINY 
    The structure of Singapore's capital markets has left them 
particularly vulnerable as global trade cools and Chinese growth 
slows. Commodities have been a mainstay after a frothy 2013 and 
2014, and private banking has loomed large, fuelling smaller 
bond deals. 
    In 2014, private banks accounted for almost half of 
investments into Singapore dollar corporate debt, a central bank 
report said last year.  urn:newsml:reuters.com:*:nL4N1AF1RK 
    Their participation has helped encourage smaller issues that 
are not assessed by credit rating agencies and yet are targeted 
at private wealth investors, analysts say. 
    "Their bond issues are also mostly unrated, so the layer of 
scrutiny provided by rating agencies is missing. Many of these 
deals were mispriced: they priced like investment grade even 
though they had high-yield profiles," said Harsh Agarwal, Head 
of Asia Credit Research at Deutsche Bank. 
    That is now changing - at considerable cost for firms. 
    Property firm Oxley Holdings, whose short-term debt dwarfs 
its cash balance, according to its latest accounts, saw yields 
on its bonds due 2019  SGOXHL1119=  jump 220 basis points to 7.5 
percent in the past quarter. 
    And banks, under pressure to increase provisions for bad 
loans, are pulling back from indebted sectors like real estate, 
commodities and oil and gas, which dominate Singapore's 
outstanding S$53 billion ($38 billion) of local currency 
corporate bonds. 
    Non-performing loans have risen at all Singapore's three 
banks in the latest quarterly results, reflecting a decline in 
loan quality across sectors. 
    "In the absence of further bank support, refinancing this 
debt may prove difficult, potentially leading to more defaults 
over the next year," said Devinda Paranathanthri at UBS Wealth 
Management, which estimates S$18 billion of local currency 
denominated bonds are coming due over the next 18 months. Over a 
quarter are from sectors facing structural headwinds. 
    The latest sign of strain has been an increase in borrowers 
asking bondholders to cut them some slack. 
    Ezra Holdings  EZRA.SI , Rickmers Maritime  RIMT.SI , Otto 
Marine  OTTO.SI  and Marco Polo Marine  MAPM.SI  are just some 
of the companies that sought bondholder consent this year to 
loosen the conditions, or covenants, attached to their loans. 
    "It will continue to be busy, but the question is whether 
loosening covenants will be adequate to give these companies the 
lifeline that they need," said Kevin Wong, Singapore-based 
partner with law firm Linklaters. 
    "There is a risk these consent solicitations may lead to 
full-blown debt restructurings." 
 ($1 = 1.3943 Singapore dollars) 
 
 (Additional reporting by Tripti Kalro; Editing by Clara 
Ferreira Marques and Will Waterman) 
 ((umesh.desai@thomsonreuters.com; +852-2843-6935; Reuters 
Messaging: umesh.desai.thomsonreuters.com@reuters.net)) 
 
Keywords: SINGAPORE ECONOMY/DEBT