Singapore builders overleveraged, underachieving as debt matures

[SINGAPORE] Singapore's builders are entering 2016 with another wall of debt coming due, falling confidence and declining earnings.

After a record S$9.6 billion of bonds were repaid this year, the industry faces S$6.4 billion of maturities next year, S$2.3 billion in 2017 and S$7.4 billion in 2018, according to Bloomberg-compiled data.

Contractors Ley Choon Group Holdings and Swee Hong are restructuring their debt with lenders, while Tat Hong Holdings is asking bondholders to ease financial covenants in its July 2018 notes, according to stock exchange filings. Five Singapore home builders classified by Bloomberg have an average debt-to-equity ratio of 48 times.

Construction emerged as one of the least optimistic industries in a quarterly survey of local firms by Singapore Commercial Credit Bureau, a credit assessment venture between Dun & Bradstreet and the Association of Small and Medium Enterprises. Five of six industry indicators - net profit, inventory, employment, selling price and new orders - are seen shrinking in the first three months of next year.

"Some of the issuers we have looked at in the industry are quite leveraged," said Neel Gopalakrishnan, an emerging markets fixed income analyst at Credit Suisse Group AG's private banking and wealth management unit in Singapore. "Hence, we have not recommended their bonds." The yield on Tat Hong's 2018 local-currency debt has risen to 6.09 per cent as of 9:30 am in Singapore on Tuesday, according to data compiled by Bloomberg, versus 4.5 per cent when it was sold in July 2013. Dollar-denominated securities issued by Singapore entities returned 0.72 per cent in the past three months in a JPMorgan Chase & Co index, the second-worst performance in the Asean region.

The city-state was flagged by Standard & Poor's in August as having the highest corporate leverage in South-east Asia, with this year's debt levels predicted to rise to more than four times companies' operating earnings. While the economy averted a recession last quarter, the slowest growth in almost two years is weighing on contractors amid falling property values, rents and occupancy rates.

Building and construction awards are set to fall for the first time since 2012 after shrinking every quarter this year, according to government statistics. They fell by one-third to S$19.6 billion in the first nine months of 2015, versus the same period last year.

The construction sector, which accounts for about 5 per cent of gross domestic product, grew at an annual pace of 1.6 per cent last quarter, slowing from 3 per cent in 2014 and 6.3 per cent in 2013, according to data published by Monetary Authority of Singapore.

It hasn't helped that some of the city's biggest developers, including City Developments and Ho Bee Land, have been busy building overseas land banks in recent months. Asian investors accounted for nearly 20 per cent of global cross-border investment in the first six months this year, with Singapore coming in third at US$4.4 billion of outbound spending, according real-estate consultants CBRE.

"Building activities have been fairly muted since the second half of 2015," said Audrey Chia, chief executive at the Singapore Commercial Credit Bureau. "With the completion of several major public building projects and decline in construction demand in terms of contracts and tenders awarded, sentiment within the construction sector has been relatively downbeat."

BLOOMBERG