Tricky Cashflow Balancing Acts – Singapore

I tried to do an exercise on our locally listed companies and filtering out those that are over reliant on short term borrowings which could pose a problem to refinance in case of a market shock.

It is not the most accurate thing to do given we are 3/4th into the year and most of the numbers are dated, using end 2013 accounts. But it was the only reference point I had.

My criteria.
* Financial leverage (ie. total assets/total equity) of over 3 times which means the company is probably borrowing alot unless they are sitting on cash.
* Cash and Near Cash – ST Borrowings and Liabilities excluding trade payables is a -ve number that exceeds their current market cap.
* EBITDA/Interest Expense Ratio of < 5 which means at least 20% of their income goes to interest expense.

Arriving at the list, I decided to filter out the companies with smaller and unmeaningful market caps. Names such as Junma, China Essence and China HongCheng because it does not really matter that a company with a market cap of SGD 5 mio has short term debts of SGD 500 mio and other current assets to make up for it.

The result is a short list of 20 names some of which have outstanding bonds.
potentially overleveraged companies*in SGD

Qualifiers :
This is based on their last year end financial statements. Thus names like Otto Marine and Tiong Seng which managed SGD bond borrowings or others that managed to get loans in the last few months are could be accidentally included.

Some highly leveraged companies have been left out !! Because their earnings are more than sufficient to cover their interest payments which makes them more viable but nonetheless highly geared, excusing the banks and finance companies which are in the business of lending that makes financial leverage a necessity.


So we have 3 STI companies in the list – Olam, Wilmar and Noble, all commodities trading firms. I will classify them as “Too Big To Fail” and trust that banks and governments will ensure their viability.

Wilmar’s numbers have changed in their 1H14 reporting with some short term liabilities reduced and long term liabilities up. This half year is supposed to be better for them although their share price is not showing signs of it even though we have 3 analysts calling a BUY on the stock in the past 3 weeks despite an Indonesian Parliament proposal to cut foreign plantation holdings to 30% (and Wilmar is not majority owned by Indonesians !!).

WILMAR SHARE PRICE*Wilmar 5 year Stock Price

NOL is government owned and every cent they are making appears to be going into interest expense so it does not matter which is the same for SIA owned Tiger Airways (estimated to be loss making into 2016) and Cosco.

As for the other 3 loss making companies, Sino Construction, Otto Marine and Maxi Cash Finance, Otto will turn into profit this year with Maxi Cash a borderline case and Sino Construction still in loss for half year ended Jun 2014 but making a takeover bid for Australia’s Guildford Coal that will undoubtedly raise eyebrows and attract queries like they did back in 2011 when fixed assets vanished from their financial statements.

Swiber is one of the largest issuers in Singapore and now they have their baby Vallianz doing some borrowing as well. Swiber has more bonds outstanding than Wilmar too !

One lesson from this, for me at least, is that a company’s sponsor and size does matter eg. Olam and Temasek. Now Olam can borrow away for all we care.

Short term borrowings have been the downfall of many a company during the many big and small credit crunches we have had in the past. Even the Lehman collapse was the result of a credit crunch – on Lehman !

Yet, unfortunately, its more to do with Luck than Smart in running a company, if you ask me.