Relief measures reprieve for builders, but month-long shutdown a dampener

Singapore

AS the circuit breaker measures kick in, the engineering and construction industry is likely to be hard hit, even as the government rolls out new relief measures to cushion some of the impact.

Construction sites have come to a standstill with the mandatory shutting of most workplaces islandwide from April 7 to May 4.

Against such a backdrop, Deputy Prime Minister and Finance Minister Heng Swee Keat announced a S$5.1 billion Solidarity Budget on Monday to provide additional support for businesses and households.

Construction firms could benefit from the enhanced Jobs Support Scheme, which offsets 75 per cent of gross monthly wages for the first S$4,600 of wages paid for each local employee in April, as well as a waiver of foreign worker levies due in April. Employers will also receive a foreign worker levy rebate of S$750 for each work permit or S Pass holder, based on previous levies paid in 2020.

Still, ceasing construction is likely to result in cash flow pressures on companies.

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Said Jesica Lee, chief financial officer of International Cement Group (ICG): "The additional government measures on jobs support schemes will help to defray a significant portion of our staff costs as we have many non-local employees.

"However, with no revenue as a result of the shutdown of construction sites for a month, this will adversely affect the aluminium business' cash flows."

For the financial year ended Dec 31, 2019, aluminium contributed some 13.2 per cent to the group's revenue. While its cement business has yet to see direct impact from Covid-19 as its target market and supply chain for cement are mainly within the Central Asia region, the group is not ruling out that demand for cement will fall with the closure of construction sites.

Ms Lee also said that ICG is waiting for more information on rental rebates from their landlords. The government's new Covid-19 bill providing temporary relief from some legal obligations in light of the coronavirus outbreak " will definitely help".

Meanwhile, several other construction firms such as Boustead Projects, Boldtek Holdings, Figtree Holdings and ISOTeam said in regulatory filings that they have halted ongoing projects at respective worksites, in compliance with the government's attempt to prevent further spread of the novel coronavirus.

Mainboard-listed Boustead Projects, for instance, noted in a bourse filing that telecommuting arrangements will not be practicable at its design-and-build project sites.

Its principal design-and-build subsidiary, Boustead Projects E&C, will suspend non-essential construction activities at all of its construction sites in Singapore, except where exempted by the authorities, and only resume full operations when the circuit breaker ends.

Some firms also said that their financial performance for FY2020 is expected to be impacted given the long-drawn nature of the virus outbreak.

Catalist-listed Figtree Holdings, which specialises in designing and building commercial and industrial facilities, said in its regulatory filing that the impact of the pandemic on the global and domestic economy is expected to "impair the group's earnings capacity and ability to secure new projects in the next 12 months".

The negative impact on construction firms' financials as a result of the circuit breaker is in part due to their large fixed cost base, according to CGS-CIMB analyst Ong Khang Chuen.

This is exacerbated by the "prolonged weakness and the ensuing lower profitability" of the sector for the past three years, which has resulted in construction players having a weaker interest coverage ratio, said Mr Ong.

"We also noticed that net gearing of construction companies in Singapore has trended up in recent quarters. With their cash flow further tightened due to the circuit breaker, credit risk in the sector could further increase," he added.