When debt mounts, not all Singapore companies are created equal

AFTER the tumult of 2017 in the Singapore-dollar bond market, where nine defaults took place, it could be easy to mistake the drop to just one in default in 2018 as a sign of calmer waters ahead. However, the recent default of Hyflux Ltd should serve as a timely and perhaps jarring reminder of the recent past. Recent research from our analysts suggested that this issuer might well be the thin end of the wedge.

In that same research, we surveyed the 375 companies listed on the mainboard of the Singapore Exchange, with headquarters in Singapore, and the results show that there is potential bifurcation for those companies in terms of leverage. Companies in the commodities space and property developers represent higher credit risk while light industries are at the other end of the spectrum with cash piles and manageable investments.

While many Singapore companies continue to enjoy healthy balance sheets, one-third of the companies surveyed had especially weak credit metrics, including EBITDA-interest coverage below 2x. What that translates to is some S$300 billion of debt, with a median debt-to-EBITDA ratio of close to 7x in the past 12 months - something we traditionally regard as high, and something we would generally expect to see on the speculative end of the rating spectrum. Median gross leverage has been trending up for the last 18 months in Singapore. This, combined with a global economic environment that has been punishing for trade-oriented economies like ours, could spell trouble for some issuers.