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Bad debt in Singapore predicted to increase due to Sino-US trade war, part of overall dismal economic trends

On the heels of a dismal economic growth prediction this year and even the prospect of a looming recession, Singapore firms also may accumulate more bad debt as the Republic’s trade-dependent economy experiences ripples from ongoing Sino-US trade tensions, Bloomberg reported yesterday (27 Aug).

Shaun Langhorne, restructuring lawyer and partner in Singapore at Hogan Lovells Lee & Lee, told Bloomberg that “a tide of distressed debt” can be observed in Singapore.

Singapore-listed oil and gas explorer KrisEnergy Ltd for example announced last week that it will “temporarily cease repayment” on some of its financial obligations, including the interest payable under its S$200 million bond due in the next four years, according to Bloomberg.

KrisEnergy, which is partly held by Keppel Corp, also indicated that it has received a letter from HSBC Holdings Plc for “acceleration” of their term facility agreement, Bloomberg added.

Greater accumulation of bad debt may signal trouble for creditors and bond investors as borrowers may struggle to repay their debts, particularly when Singapore’s manufacturing sector has taken a hit in Q2 2018.

Danny Ong, a partner at Rajah & Tann Singapore LLP, told Bloomberg that more creditors and investors are becoming “increasingly aggressive” in enforcing their borrowers’ debts, and have not hesitated in making them insolvent as a result.

“We expect to see more distress in Singapore and the larger Asian region,” Ong added.

Recession in Singapore expected in 2019; slower growth in retail, tourism: Credit Suisse

Credit Suisse, in its latest report on Singapore’s market strategy, also observed that Singapore’s GDP growth in the second quarter of this year has “slowed more significantly compared” in contrast to regional competitors in international trade such as Hong Kong and South Korea.

Hong Kong’s GDP grew by 0.6 per cent, South Korea by 2.1 per cent, and Taiwan by 2.4 per cent, while Singapore’s GDP grew only by 0.1 per cent, noted Credit Suisse, as seen in the graph below.

While electronics manufacturing contributed to 80 per cent of the growth in value-add in the sector in 2017 and 2018, Singapore’s manufacturing sector may still take a hit as its growth is predicted to “reverse sharply” in the second half of this year. A “weakness in trade-related sectors is likely to dampen services demand”, according to Credit Suisse.

“Our more conservative forecast is driven by our cautious view on the manufacturing sector, where we expect a decline of 3.2% YoY led by contraction in the electronics cluster. This is unlikely to be offset by the construction and services sectors,” said Credit Suisse in its report.

Even strong growth in other industries such as information and communications may not be sufficient in offsetting the decline in manufacturing and retail trade, as the sector only makes up 4 per cent of Singapore’s GDP.

“The information and communications sector has been a relative bright spot in the economy, growing at close to 5% per annum since 2016. The strong performance has continued through 1Q19 with 6.6% YoY growth.