Published March 23, 2009

Some S'pore firms face refinancing risks: Fitch Ratings

By OH BOON PING

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SOME Singapore companies face refinancing risks even though the local banking system is resilient, says Fitch Ratings.

'There is a risk that some banks may withdraw the uncommitted facilities.' - Fitch Ratings managing director of corporates Tony Stringer

Speaking to BT, its managing director of corporates, Tony Stringer, said that Asian companies often rely on short-term bank credit lines for funding, which will be a concern this year and next because most of these are uncommitted.

The exceptions in the Asia-Pacific are Australia, Hong Kong and Taiwan, 'where rated entities have committed bank facilities with maturities longer than a year'.

'As the banking sector experiences stress and constraints, there is a risk that some banks may withdraw the uncommitted facilities,' says Mr Stringer.

However, Fitch believes that most rated entities here - for example, SingTel and Singapore Power - are in relatively strong financial positions because 'they are dominant players in stable industries that are less sensitive to changes in GDP'.

An exception is Chartered Semiconductor Manufacturing, which has been placed under negative watch and rated BB minus.

SingTel and Singapore Power are both rated A.

At sectoral level, tech stocks and car makers face bigger credit issues due to rapidly dwindling consumer demand.

'So corporations such as Toyota, Honda, Kia, Sony, Panasonic, Hitachi - all these are vulnerable to rapid decline in consumption,' says Mr Stringer.

Singapore's tech sector is under pressure because 'all the fundamentals are moving in the wrong direction', he says.

'Companies are not able to quickly cut cost to raise margins. For entities that are financially leveraged, refinancing is important, but sources of financing have become scarce.'

As for Singapore's banking system, Fitch sees continued resilience. Its Banking System Indicator - a measure of the system's intrinsic strength without potential central support - is rated 'B'. The city state is also not deemed to be vulnerable to factors that can lead to banking distress. Only Japan fares as well on both counts.

In terms of overseas-listed China stocks, Fitch sees state-owned enterprises faring far better than private companies because they have central government support.

However, oversupply remains an issue in some sectors such as steel, in which the central government has been promoting industry consolidation for some time. 'I think the environment for steel companies on the cost side has improved because of the fall in iron ore prices, but the demand side is more questionable,' says Mr Stringer.

He reckons that much depends on the extent to which China's stimulus package can generate sufficient demand to offset the shortfall in external demand.

Meanwhile, he sees more Asian companies launching bond buy-backs to take advantage of the cheap bond valuations in the market, while cutting their debt exposure. An example is Hong Kong-listed Nine Dragons Paper Holdings, which plans to buy back US$284 million of five-year notes which it sold in April last year at a discount of at least 47 per cent to face value.