SINGAPORE SMEs UNDER GROWING STRESS
Recent defaults and rising borrowing costs for private banking investors have hurt demand, says Eastspring Investments
SINGAPORE’S smaller companies will likely have to pay more to roll over borrowings in the local bond market ahead of unprecedented maturities, as the wealthy investors who constitute a key buyer base get cold feet.
Recent defaults along with rising borrowing costs for private banking investors had hurt demand, according to Eastspring Investments portfolio manager Danny Tan, who helped manage the Singapore Select Bond Fund.
The fund had S$854 million (RM2.54 billion) of assets under management as of May 31.
Fresh signs have emerged of stress among smaller borrowers in the local debt market this year.
CW Group Holdings Ltd, a precision machine tool maker, defaulted on a bond last month. Hyflux Ltd, a water treatment and power firm, is pursuing a debt restructuring after defaulting on its perpetual securities.
Investors who borrow to buy local debt also face rising funding costs. Singapore’s three-month swap offered rate, a reference rate for financing costs, has soared to near the highest in over two years.
“The greatest risk you will have is the refinancing risk of the small and medium enterprises (SMEs).”
Borrowers would have to issue at much higher coupons to entice private banking investors whose leverage costs had gone up, he said.
The average yield on Singapore dollar bonds has increased 48 basis points this year to 3.51 per cent, according to an ICE BofAML index.
The nation’s borrowers, excluding banks, faced record bond maturities in 2020, with a total of S$23 billion due from now through that year, according to Bloomberg-compiled data.
Singapore dollar bond sales have slumped 37 per cent this year compared with the same period last year, hitting the lowest in nearly a decade, according to Bloomberg data.