reporter2
13-09-16, 20:06
http://www.businesstimes.com.sg/companies-markets/smaller-developers-may-face-liquidity-squeeze-sp
Smaller developers may face liquidity squeeze: S&P
But overall sector remains resilient, with bonds maturing in next 24 months mainly from larger developers
By Lynette Khoo
[email protected]
@LynetteKhooBT
Sep 8, 2016
WITH Singapore's real estate sector forming the lion's share of outstanding domestic bond issuance, scrutiny of the sector is intensifying following the fallout of marine engineering company Swiber Holdings.
In a report published on Wednesday, S&P Global Ratings said that the overall real estate sector remains resilient but some small developers may face liquidity squeeze, making them more vulnerable to repayment risks on bonds outstanding.
The larger developers are the largest issuers of bonds maturing in the sector in the next 24 months, so repayment risks may not be as high, while Reits, with their stable and recurring cash flows, lower leverage, and large proportion of unencumbered assets, have more financial flexibility than developers.
"In our view, smaller developers are more vulnerable than their larger peers to near-term market volatility due to their currently weak liquidity positions," S&P analysts Kah Ling Chan and Annabelle Teo said in the report.
Of the total S$60 billion of bonds outstanding issued by Singapore listed entities as of Aug 31, real estate developers and Reits make up about 52 per cent, with the transport and logistics industry being a distant second at around 12 per cent share.
About S$2 billion of bonds will mature in the fourth quarter this year and another S$9 billion next year; Singaporean developers and Reits account for almost 75 per cent of bonds maturing in the fourth quarter and more than 40 per cent of bonds maturing in 2017.
But the debt maturities for developers are more sizable and "lumpy" than for Reits, which have spread out their debt maturities.
More than 40 per cent of the property developers that issued bonds have cash and operating cash flows less than their short-term debt maturities, S&P flagged. Of these, about half have liquidity of less than 0.5 times the short-term debt maturities, and are hence left with minimal working capital buffer.
The report cited no specific names but The Business Times'own screening of property counters found that among developers with bonds outstanding, the handful of companies with short-term debt maturities exceeding cash and operating cashflows include Heeton Holdings, TA Corporation, Aspial Corporation, Oxley Holdings and Perennial Real Estate. But Oxley and Perennial, which are both above S$1 billion in market cap, have an interest coverage ratio of more than one.
While some Chinese developers listed here also have weak liquidity and debt metrics, most do not issue bonds here. Ying Li Real Estate's S$200 million convertible bonds matured last year.
"The ability of these developers to refinance or push back debt maturities is therefore the key default differentiator," the S&P analysts said. "This ability is also predicated on the health of the underlying property market."
However, property prices have declined about 9.4 per cent from their peak in 2013, and substantial supply overhang persists; on a rolling 12-month basis, developers' liquidity has deteriorated.
Smaller developers (with a market cap of S$1 billion or below) that are stricken with high leverage and weak liquidity have about S$1.4 billion of bonds outstanding. Their median debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio is more than 20, with short-term debt maturing within the next 12 months amounting to S$3.1 billion.
Liquidity sources for most of these companies are less than their liquidity uses in the next 12 months, S&P flagged.
Compared with regional peers, Singapore developers have also seen their leverage on domestic currency bonds grown more rapidly, with their median ratio of gross debt-to-Ebitda above 11 for the past three years.
Chinese developers rated by S&P had a median debt-to-Ebitda ratio of about 6.8 in 2015, and the median rating for this group is "BB". Similarly for Indonesian developers, the ratio was 3.7 in 2015, and the average rating is "B", reflecting their small size.
"We believe that leverage for Singapore real estate issuers is unlikely to improve any time soon," the S&P analysts said. "Their debt is very high, and reduction will require either a substantial increase in operating cash flows, a dramatic cut in capital spending, or an equity infusion, which is not prevalent at present."
Smaller developers may face liquidity squeeze: S&P
But overall sector remains resilient, with bonds maturing in next 24 months mainly from larger developers
By Lynette Khoo
[email protected]
@LynetteKhooBT
Sep 8, 2016
WITH Singapore's real estate sector forming the lion's share of outstanding domestic bond issuance, scrutiny of the sector is intensifying following the fallout of marine engineering company Swiber Holdings.
In a report published on Wednesday, S&P Global Ratings said that the overall real estate sector remains resilient but some small developers may face liquidity squeeze, making them more vulnerable to repayment risks on bonds outstanding.
The larger developers are the largest issuers of bonds maturing in the sector in the next 24 months, so repayment risks may not be as high, while Reits, with their stable and recurring cash flows, lower leverage, and large proportion of unencumbered assets, have more financial flexibility than developers.
"In our view, smaller developers are more vulnerable than their larger peers to near-term market volatility due to their currently weak liquidity positions," S&P analysts Kah Ling Chan and Annabelle Teo said in the report.
Of the total S$60 billion of bonds outstanding issued by Singapore listed entities as of Aug 31, real estate developers and Reits make up about 52 per cent, with the transport and logistics industry being a distant second at around 12 per cent share.
About S$2 billion of bonds will mature in the fourth quarter this year and another S$9 billion next year; Singaporean developers and Reits account for almost 75 per cent of bonds maturing in the fourth quarter and more than 40 per cent of bonds maturing in 2017.
But the debt maturities for developers are more sizable and "lumpy" than for Reits, which have spread out their debt maturities.
More than 40 per cent of the property developers that issued bonds have cash and operating cash flows less than their short-term debt maturities, S&P flagged. Of these, about half have liquidity of less than 0.5 times the short-term debt maturities, and are hence left with minimal working capital buffer.
The report cited no specific names but The Business Times'own screening of property counters found that among developers with bonds outstanding, the handful of companies with short-term debt maturities exceeding cash and operating cashflows include Heeton Holdings, TA Corporation, Aspial Corporation, Oxley Holdings and Perennial Real Estate. But Oxley and Perennial, which are both above S$1 billion in market cap, have an interest coverage ratio of more than one.
While some Chinese developers listed here also have weak liquidity and debt metrics, most do not issue bonds here. Ying Li Real Estate's S$200 million convertible bonds matured last year.
"The ability of these developers to refinance or push back debt maturities is therefore the key default differentiator," the S&P analysts said. "This ability is also predicated on the health of the underlying property market."
However, property prices have declined about 9.4 per cent from their peak in 2013, and substantial supply overhang persists; on a rolling 12-month basis, developers' liquidity has deteriorated.
Smaller developers (with a market cap of S$1 billion or below) that are stricken with high leverage and weak liquidity have about S$1.4 billion of bonds outstanding. Their median debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio is more than 20, with short-term debt maturing within the next 12 months amounting to S$3.1 billion.
Liquidity sources for most of these companies are less than their liquidity uses in the next 12 months, S&P flagged.
Compared with regional peers, Singapore developers have also seen their leverage on domestic currency bonds grown more rapidly, with their median ratio of gross debt-to-Ebitda above 11 for the past three years.
Chinese developers rated by S&P had a median debt-to-Ebitda ratio of about 6.8 in 2015, and the median rating for this group is "BB". Similarly for Indonesian developers, the ratio was 3.7 in 2015, and the average rating is "B", reflecting their small size.
"We believe that leverage for Singapore real estate issuers is unlikely to improve any time soon," the S&P analysts said. "Their debt is very high, and reduction will require either a substantial increase in operating cash flows, a dramatic cut in capital spending, or an equity infusion, which is not prevalent at present."