Professional Documents
Culture Documents
Asia-Pacific Credit Trends 2014: Labor Shortage and Property Curbs Would Shrink Singapore Corporates' Profitability
Asia-Pacific Credit Trends 2014: Labor Shortage and Property Curbs Would Shrink Singapore Corporates' Profitability
Asia-Pacific Credit Trends 2014: Labor Shortage and Property Curbs Would Shrink Singapore Corporates' Profitability
Asia-Pacific Credit Trends 2014: Labor Shortage And Property Curbs Would Shrink Singapore Corporates' Profitability
Primary Credit Analyst: Wee Khim Loy, Singapore (65) 6239-6303; wee.khim.loy@standardandpoors.com Secondary Contact: Andrew M Wong, Singapore (65) 6239-6306; andrew.wong@standardandpoors.com
Table Of Contents
Sector Outlook Key Risks And Trends Ask The Analyst Related Research
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
Sector Review:
Asia-Pacific Credit Trends 2014: Labor Shortage And Property Curbs Would Shrink Singapore Corporates' Profitability
(Editor's Note: This article is part of a series on the credit trends of Asia-Pacific's corporate sectors for 2014. The series responds to analytical queries received recently on a sector or a specific issuer in that sector.)
Sector Outlook
The credit outlook for Singapore's rated corporates would largely be stable in 2014 (see table 1). This is based on Standard & Poor's Ratings Services' expectation that Singapore's GDP will grow at 3.4% and 3.7% in 2014 and 2015 respectively.
Table 1
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
Sector Review: Asia-Pacific Credit Trends 2014: Labor Shortage And Property Curbs Would Shrink Singapore Corporates' Profitability
The government's stance of maintaining a strong Singapore dollar to counter inflation also erodes local companies' competitiveness. However, we believe rated domestic companies have sufficient cushion to withstand volatility in their financial metrics and maintain their credit quality. Rated entities' fair-to-strong business risk profiles also provide resilience to potential deterioration.
What's the impact on the real estate sector if interest rates were to rise?
Real estate investment trusts (REITs) make up about 30% of our pool of rated Singapore corporates. The trusts currently enjoy low interest rates, and about half of their outstanding debts are fixed. Therefore, if interest rates were to rise, we believe the impact on our rated REITS will not be material. For example, at Sept. 30, 2013, about 75% of CapitaCommercial Trust's (CCT) outstanding debt was fixed, with a strong interest coverage ratio of 5.5x. Furthermore, CCT's average cost of borrowings in 2013 is low, at 2.7%. This figure compares favorably to 3.9% in 2009, when CCT's interest coverage ratio was adequate, at 3.3x. What's more, we consider that rated Singapore REITs have increased their financial flexibility. They have expanded their unencumbered assets of office and retail space that can be used as collateral for financing if needed. For example, Starhill Global REIT's portion of unencumbered assets is about 79% at September 2013, compared to 60% in 2009. We believe REITs are likely able to secure competitive interest rates if they have sufficient collateral. We project that the ratings on REITs will remain stable if interest rates were to rise by less than 50 basis points, provided their EBITDA levels remain the same. In this scenario, the median EBITDA interest coverage of rated REITs is likely to weaken to 3.5x, which supports at least an "intermediate" financial risk profile.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
Sector Review: Asia-Pacific Credit Trends 2014: Labor Shortage And Property Curbs Would Shrink Singapore Corporates' Profitability
Are corporates linked to the government more resilient to weather a weaker business environment in 2014?
We rate eight Singapore government-linked corporates, which constitute about 30% of our pool of rated companies in the country. These entities have dominant market positions in their respective industries, including the utilities, telecommunication, transportation, and capital goods sectors (see table 2). In addition, we consider them to be highly efficient, with financial risk profiles ranging from "intermediate" to "minimal". Given these strengths and our opinions of the likelihood of government support, we expect these companies to be more resilient than their private-sector peers to a weaker business environment and increasing capital investment plans. We have one of the government-linked entities on negative outlook: public transportation company SMRT Corp. Ltd. We believe SMRT's substantial capital-expenditure plans could worsen the company's financial metrics to beyond levels for the current stand-alone credit profile and rating.
Table 2
Role Critical Important Very important Critical Limited importance Very important Very important Critical
Link Very strong Very strong Very strong Very strong Strong
aa aaa
AA/Stable/AA-/Stable AAA/Stable/A-1+
Related Research
Articles in the Asia-Pacific Credit Trends 2014 series: Mining Companies' Credit Metrics Will Mend Slowly; Oil And Gas Firms Foresee Higher Demand, Dec. 4, 2013 Korea's Corporates Will Struggle With Softer Demand At Home And From Abroad, Dec. 4, 2013 Transportation Infrastructure Faces Policy Uncertainty; Utilities Deal With High Energy Costs And Green Power," Dec. 3, 2013 Still Robust Domestic Growth and Steady Financial Profiles Underpin Our Mostly Stable Outlook On Indonesia's Corporate Sector, Oct. 30, 2013 Middle Classes Fuel Consumer Products; Retail To Keep Doing It Hard; Gaming On A Roll, Oct. 30, 2013 Real Estate Developers Wrestle With Regulatory Curbs; REITs Hunt For M&As, Oct. 29, 2013
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
Sector Review: Asia-Pacific Credit Trends 2014: Labor Shortage And Property Curbs Would Shrink Singapore Corporates' Profitability Tech Firms Focusing On Asia And Smart Devices Will Outperform, Oct. 28, 2013 Telcos Look To The Cloud In Search Of Growth, Oct. 27, 2013
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
Copyright 2013 by Standard & Poor's Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT