Singapore Builders Facing Maturity Wall as Home Prices Dropby
$2.7 billion in Singapore dollar property bonds due in 2017
Investors not adequately rewarded, JP Morgan Private Bank says
Singapore’s real-estate firms are facing record debt maturities, just as home sales post their longest-ever losing streak, straining the finances of builders less prepared to weather the storm.
Singapore builders and trusts have an unprecedented S$1.8 billion ($1.3 billion) of local currency bonds maturing this quarter, S$1.2 billion in the final quarter and another S$3.7 billion in 2017. Credit Suisse Private Banking said it doesn’t recommend smaller builders due to “relatively high” leverage. JPMorgan Chase & Co. said these companies are “most exposed” to a further property market correction given their weakening financial profiles.
“Many bonds are un-rated and investors aren’t adequately rewarded and have under-priced the risk,” said Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JP Morgan in Hong Kong. The finances of smaller builders are weakening and leverage is rising in a local market that lacks sufficient scrutiny, he said.
Home values in the city state have dropped 9.4 percent from the peak in 2013 and the declines show no signs of abating. An index tracking private residential prices fell for the 11th quarter in the three months ended June 30 and the government on Thursday cut its 2016 economic growth forecasts. The smallest 50 real estate firms and trusts listed on the Singapore Exchange are in a weaker position to repay debt, with operating earnings dropping to 9.2 times interest expenses from 15.8 times five years ago.
"Unlike the commodity sectors, the Singapore property sector -- while softening -- is still perceived to be relatively stable, given the generally moderate pace of decline in prices," said Chua Jen-Ai, a research analyst at Bank Julius Baer Singapore Ltd. Stresses are only likely to appear next year, when developers stop benefiting from the sales boom that ended in 2013, Chua said.
Investors are demanding bigger premiums to hold notes from smaller borrowers. Heeton Holdings Ltd., which builds homes along Holland Road known for its cafes and restaurants, has seen the yield on its 2017 bonds rise about 130 basis points to 6.54 percent from a year ago, according to Bloomberg-compiled data. The firm, which also develops condominiums, has total debt of S$369.2 million and cash and equivalents of S$11.2 million as of June 30, according to company results.
The yield on the 2017 securities of Aspial Corp., a jewelry retailer and developer of high-rise condos, has jumped to about 9.8 percent, the highest in data going back to November 2014, according to Bloomberg-compiled prices.
Credit Suisse Private Bank prefers real estate investment trusts, whose borrowing levels are capped by regulators at 45 percent of total assets. “We prefer REITs where leverage is lower and cash flows are more stable,” said Neel Gopalakrishnan, the firm’s Singapore-based emerging markets fixed-income analyst.
Not all trusts have escaped unscathed from the downturn, as demand for leasing properties has weakened and some have taken on more debt for acquisitions. Moody’s Investors Service changed its outlook on Singapore-listed Suntec Real Estate Investment Trust to negative on Tuesday after it proposed to buy a stake in a Melbourne property and fund the acquisition with debt.
The ratings firm said that Singapore REITs have been making debt-funded acquisitions and while the ones with strong sponsors have access to banking relationships, smaller trusts may face challenges refinancing.
“All of them have become a lot more aggressive in terms of acquisitions over the last 12 to 24 months,” said Rachel Chua, a Singapore-based analyst at Moody’s.