Singapore Inc. grapples with mounting leverage and macro uncertainties: S&P

SINGAPORE -- Singapore companies may be in for a run of financial distress, according to an S&P Global Ratings, which says a survey of 375 listed companies in Singapore found one-third had weak credit metrics, with interest coverage below 2x in the past 12 months.

The 375 surveyed companies have aggregated debt in excess of S$300 billion (US$220 billion), and a median debt to EBITDA ratio of close to 7.0x, which S&P Global Ratings considers high.

"Singapore Inc.'s funding profile has been deteriorating, with free cash flow looking barely sufficient to cover short-term debts," said S&P Global Ratings credit analyst ,Bertrand Jabouley.

"A combination of substantial leverage, economic slowdown, and a looming wall of maturing bonds makes companies more vulnerable to market shocks, and increases default risk."

After a peak in 2017 with nine defaults in the Singapore-dollar bond market, there was only one default in 2018.

"We don't believe the downward trend in defaults reflects any improvement in domestic credit quality last year. After plateauing in 2016-2017, median gross leverage has been on the rise for the past 18 months," said Jabouley.

The report says Singapore's banking system receives good support from core customer deposits, which fund about 78% of customer loans.

"To that extent, liquidity should remain robust due to banks' strong franchises and low reliance on wholesale sources, and the institutions should be able to substitute for bond investors in providing credit support to local companies," it says.

"However, as Singapore Inc.'s liquidity diminishes and as issuers face a maturity wall in 2020 and beyond, investors may become nervous about letting these bonds roll over."

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