Local firms mixed on impact of debt moratorium extension

Singapore

SMALL and medium-sized enterprises (SMEs) had mixed reactions on being given another three to six months to resume full loan repayments under a debt moratorium programme extension, with some concerned over the accumulation of interest while others welcomed the reprieve.

The Extended Support Scheme - Standardised was jointly announced on Monday by the Monetary Authority of Singapore, the Association of Banks in Singapore and the Finance Houses Association of Singapore. It allows SMEs in sectors that have been hit harder by the pandemic, such as aviation and tourism, to defer 80 per cent of principal payments on their secured loans granted by banks or finance companies until June 30, 2021, from Dec 31, 2020 previously.

This extension also applies to loans granted under Enterprise Singapore's (ESG) Enhanced Working Capital Loan Scheme and Temporary Bridging Loan Programme.

SMEs in other sectors can get a three-month extension to defer the same percentage of their principal payments until March 31, 2021.

Centurion Corporation CEO Kong Chee Min told The Business Times that the property management firm has been proactively conserving cash as it anticipates continuing uncertainties and potential payment delays from SME clients impacted by the pandemic. It has term loans with UOB and other banks in Singapore, mainly for development of its property assets.

"The extension of principal payment moratoria on loans is helpful and welcome, as it helps us to conserve cash to tide through current and knock-on effects of the pandemic," Mr Kong said.

SC Auto managing director and co-founder Rachel Lee likewise called the extension timely, as the firm, which manufactures buses largely for tourism, remains "badly hit" by the current dearth of travel.

"Our income has dropped by 70-80 per cent compared to pre-Covid-19. The extension of the moratorium will give us breathing space, because right now our income cannot match our expenses," Ms Lee said. The firm is servicing loans that it took up a few years ago for research and development and business expansion.

SC Auto does not qualify for the six-month extension even though its business is directly linked to tourism. Instead, it is categorised under manufacturing. Ms Lee hopes that the industry categorisations can be reviewed in future to reflect less straightforward situations like SC Auto's, where the primary industry that a company serves is badly hit by a crisis.

Adler Poh, spokesperson for the Singapore Backpacker Hostel Alliance, said the alliance welcomes any help to reduce monthly outgoing costs. Hostel owners are struggling with cash flow as not only are they operating at just 50 per cent capacity, but banks have also been loath to extend loans to small businesses in the tourism sector during this time.

Mr Poh said: "We ask the ministries to consider looking into each hostel on a case-by-case basis, the viability of the business and the brand, and quality and years of operations, and from there provide a grant or some support that is specifically to help the mom-and-pops."

Some companies were concerned that deferring loan repayments could lead to other problems down the road. For instance, Jacky Goh, director at Prime Force Engineering & Construction, wondered if it would lead to an accumulation of interest rate charges.

Christopher Ng, business director and estate manager at Party World KTV, wanted to know if there would be a cap on interest rate charges on the deferred payments. If so, the extension would ease some pressure off the firm, which has been taxed by the double-whammy of having to pay between S$15,000 and S$20,000 in monthly instalments while remaining unable to operate.

On the other hand, Lewis Cao, founder of software development and programming company Avero Tech, said the company may be able to repay its loan in full within the next six months, thanks to an increase in new projects, and would rather do so than take more time. This is "so that we can borrow again in future if we really need to expand business", he said.

Avero Tech earlier took out a S$100,000 loan under the schemes overseen by ESG to hire more staff to cope with the rise in demand.

Altitude Holdings, the local franchisee for Yoogane and Isaac Toast, and Audio House said they would not need the extension as they either do not have corporate loans or do not intend to defer their loans.

The Ministry of Law also said on Monday that it will introduce a new bill in Parliament, for a Simplified Insolvency Programme that would help micro and small companies restructure debts or wind up their businesses more quickly and cheaply.

Mr Ng of Party World KTV said that while the company is not considering winding up at this time, it could be helpful if companies are allowed to pull out of tenancy agreements during the winding-up process. This would help them in negotiations with landlords for lower rentals, he said.

"At the moment, landlords are not willing to budge (beyond) the waivers that were passed on in July, so we are paying full rental . . . If we can pull out of the contract when winding up, that would provide a fair platform for us to negotiate with some bargaining power on the tenant's side."