Singapore's corporate debt rises as growth slows
Singapore firms' indebtedness has swelled to the most in Asia after China and India as the city state's economic growth slows, according to GMT Research.
Leverage among the Southeast Asian nation's corporates is following counterparts in the two larger economies to a level considered a "danger threshold", said Gillem Tulloch, founder of the Hong Kong-based researcher. Debt rose to six times the amount of operating cash flow in 2013 for non-financial Singaporean firms, from 5.1 times in 2012, a report by GMT Research shows.
"It's a bit surprising that Singaporean companies seem to have leveraged up significantly over the past few years," said Tulloch, a former analyst at CLSA Asia-Pacific Markets. "There's been a slight loss of discipline, or it could be that the growth has not come in as expected."
Singapore's government said last month its export-led economy will experience "modest" expansion in 2014. It is likely that growth is headed for a slowdown since it cannot be sustained without more stimulus or reckless bank lending, GMT Research said.
Tulloch said equity investors should hold fewer Singaporean, Chinese and Indian shares than the benchmarks they track. Companies' debt to cash flow ratios signal that investment for business expansion in Singapore may be waning, GMT Research said.
"There is a high potential for a growth scare there," he said.
A corporate-sector bubble starts when free cash outflows exceed 50 per cent of net profit for several years, Tulloch said. Singapore's firms suffered 37 US cents of cash outflows for every US$1 of net profit earned in 2013 as they spent 40 per cent more in capital expenditure, the report says.
GMT Research tracks some 9,000 Asian companies or about 50 per cent of all listed companies in the region ranked by descending sales.