MAS gives Reits a New Year gift

Source : Business Times - 20 Jan 2009

Reit managers here have been given more breathing space on borrowing limits by the Monetary Authority of Singapore (MAS), which has clarified how downward revaluations of properties should be treated.

Basically, MAS has said that Reits need not worry if their leverage has increased because properties have been revalued and are now worth less.

Under MAS’s Property Fund Guidelines, an S-Reit’s total borrowings and deferred payments (the ‘aggregate leverage’) should not exceed 35 per cent of its deposited property. This maximum limit is set at a higher 60 per cent if the Reit obtains a credit rating and publicises it.

In a circular to Reit managers and trustees earlier this month, MAS confirmed that if the aggregate leverage has gone up because of a decline in property values, it will not amount to a breach of leverage limits. MAS also made the important point that refinancing of existing debt by a Reit is not to be construed as incurring additional borrowings.

‘So if at the point of refinancing, a Reit has to revalue its assets (which lenders will require), and so long as the refinancing is of existing debt, MAS will not consider this as additional borrowing and hence the Reit will not be in breach of the statutory leverage limit,’ says Giam Lay Hoon, group general counsel of Oxley Capital Group, which owns a stake in the manager of Cambridge Industrial Trust.

MAS also said that it will permit Reits to raise debt for refinancing purposes earlier than the actual maturity of the debt to be refinanced, without having to include such funds raised in the aggregate leverage limit. However, this is ‘provided that the funds are set aside solely for the purpose of repaying the maturing debt’.

‘The trustee must place these funds in a separate trust account which shall be drawn on only to repay the maturing debt,’ MAS said in its circular.

Oxley Capital’s Ms Giam welcomed MAS’s responsiveness to tight credit market conditions. The CFO of a Reit manager told BT that the MAS clarifications would ‘give some breathing space for some Reit managers with high gearing and with properties in danger of being substantially depreciated’.

This, he said, would ease the pressure on these Reits to recapitalise through raising fresh equity and reduce pressure on the unit price of these Reits.

‘However, ratings agencies will continue to be nervous about property depreciation as that may reflect sliding rents and occupancies and a rise in tenant-default rates,’ he added.

Stan Ho, Fitch Ratings’ senior director and head of Non-Japan Asia structured finance, stressed that ‘any downward revaluation of the underlying property would raise the loan-to-valuation ratios as far as banks lending to Reits are concerned, and this would need to be considered in our ratings for Singapore Reits’.

Kathleen Lee, vice-president and senior analyst at Moody’s Singapore, also pointed out that while a downward revaluation may not breach MAS’s statutory aggregate leverage limit for S-Reits, ‘lenders to Reits can set their own covenants and a downward revaluation could trigger a breach of some of these covenants and that could also lead to a re-rating of the Reit’.

In a separate development, MAS is understood to have sought feedback recently on whether the current minimum distribution payout ratio for S-Reits should be lowered, from 90 per cent of distributable income currently to, say, 75-80 per cent. Some Reit managers are lobbying for the cut. ‘Cash is a premium today and Reits may want to conserve their cash for a host of reasons, including servicing loans, reducing debt or just as general ammunition,’ an industry player said.

However, a rival disagreed, arguing ‘this would go against the fundamentals of why the S-Reit market was created’.

Reits have a high degree of transparency and investors have a high level of certainty of distributions from Reits. ‘So when you give more flexibility to the Reit manager in terms of how much of distributable income it has to pay to unit holders, it creates more uncertainty for the investor. Investors like clarity,’ he added.

Singapore is facing its most promising decade ahead

Source : Channel NewsAsia - 11 Jul 2008

Minister Mentor Lee Kuan Yew says Singapore is facing its most promising decade ahead.

He expects the economy to grow by up to 7 or 8 per cent over the next few years, barring a global economic downturn.

He was speaking at a dialogue session organised by the Monetary Authority of Singapore (MAS) and the Economics Society of Singapore (ESS) on Friday.

Mr Lee told his 800-strong audience of industry players and economists that he was convinced that Singapore was heading into its most promising decade yet.

“We’re going to move into a new plateau, new platform. You can see it visibly before your eyes. In 5 years, it will be good. In 10 years, wonderful,” he said.

To a question about whether Singapore’s economic future could be affected by the structural issues it is facing now, Mr Lee pointed to the country’s special circumstances even as it strives to grow its economy.

“I’m always worried about Singapore’s future in the long term because it’s not a normal country. You know, population to resource, it’s just abnormal. You therefore have no room for making mistakes,” he said.

To make the economic system work, Mr Lee reiterated that it is important to have a strong team in place to govern the country.

“We bring the best to the top. They are not taken randomly. The first batch was a fluke of history. But thereafter, we had to replace ourselves,” he said.

When asked if he would have done anything different now, given the benefit of hindsight, Minister Mentor Lee said it is hard to change the cards as time has gone by.

But on the whole, things have turned out relatively well over the years, he said.

“It’s very difficult to be all perfect. I make decisions, given the circumstances of the time, given the best options at that time. I would say on the whole, we have not done as badly as we could have. We could have done slightly better,” he said.

The Singapore government expects GDP growth this year to come in at 4 to 6 per cent, which economists consider to be a decent performance given today’s challenging economic backdrop. - CNA/ir

Singapore expected to hold up despite gloomy global outlook

Source : Channel NewsAsia - 1 Jul 2008

According to economists, the Singapore economy is expected to meet the government’s growth targets for the full year, despite a gloomy global outlook.

However, they warned that higher oil prices will drag down growth for the next two quarters.

Oil prices have been on the upsurge and are now holding above US$140 a barrel. The uptick is expected to continue, with crude futures pushing past the US$150 threshold within the next few months.

David Cohen, Director of Asian Economic Forecasting, Action Economics, said: “Singapore’s economic growth should manage something a little over 5 per cent, which would be slightly above the mid-point of the government’s official projection from 4 to 6 per cent.

“That would be respectable by any standards, even if it’s slowing from last year’s 7.7 per cent growth.”

A recent survey by the Monetary Authority of Singapore (MAS) showed that private sector economists are expecting full-year GDP to come in at 5.5 per cent as oil-related sectors continue to boom.

Moreover, domestic demand is expected to provide some support to the service industry, including retail, hotels, restaurants and construction services. Some are also hopeful of a rebound in the biomedical sector.

Robert Prior-Wandesforde, Senior Asian Economist at HSBC, said: “Pharmaceuticals, which was growing for a month or two at a hundred per cent, is now contracting by 50 per cent. That’s really swinging this economy around and I think that is why the second quarter could see a negative.

“(But) I would expect that to bounce back, and I think that would be the key reason why the third quarter would be positive. I think Singapore will do okay… I’m still looking for quite an ambitious and quite a positive 6 per cent growth number for 2008.”

But the outlook for the manufacturing sector, specifically electronics, is uncertain as inflation is at its highest in 26 years.

Mr Prior-Wandesforde said: “I think inflation will start to come down in the second half of this year in Singapore, but perhaps not as quickly as the central bank would like.

“Therefore, I expect the Monetary Authority of Singapore (MAS) to keep the exchange rate strong here, towards the top of the band as a means of keeping downward pressure on inflation.”

Inflation is now at 7.5 per cent, but that is expected to ease in the second half of the year. Nonetheless, to rein in rising costs, economists expect the MAS to keep to its strong Sing dollar policy.

Economists in MAS survey expect S’pore GDP to grow 5.5% in 2008

Source : Channel NewsAsia - 16 Jun 2008

Private-sector economists are a little less optimistic about Singapore’s economic growth this year than they were three months ago.

According to the latest quarterly survey of 21 professional forecasters by the Monetary Authority of Singapore, they expect full year growth to come in lower at 5.5 per cent.

The new forecast is a slight downgrade from the 5.6 per cent estimate in the last survey in March. However, it is still at the high end of the government’s target of four to six per cent growth.

Song Seng Wun, Regional Economist, CIMB-GK Research, said: “For the full year, we believe that there are certain sectors and industries which may still provide the lift for overall growth. For instance, the construction sector - though faced with rising costs - it’s still probably going to do reasonably well, with double digit growth.

“And within the services sector itself, we have seen some moderation (in) activities, but we are still seeing enough activities going on to give some sort of decent growth.”

For the second quarter alone, the forecast is for growth to come in at 4.7 per cent, better than the 4.4 per cent forecast given in the previous survey.

But inflation is still pushing higher to as much as 7.5 per cent, primarily on the back of rising oil and food prices. Still, it is expected to ease in the third quarter.

David Cohen, Director, Asian Economic Forecasting, said: “We’ll get a little bit of relief in the third quarter, when the year-on-year comparison will be a little more generous because it will have already included the sales tax increase last July, so the year-on-year comparison won’t be inflated anymore.”

For the whole year, inflation is seen hitting six per cent. That’s higher than the forecast of five per cent in the previous survey three months ago.

Some economists said they see enough momentum for the Singapore economy to keep growing, especially since the US slowdown has so far not been as deep as earlier feared. - CNA/vm

Singapore short rates dive, defying expectations

Source : Business Times - 19 Jun 2008

Analysts believe yesterday’s big move was due to intervention by MAS

SHORT-TERM interest rates plunged yesterday to almost hit a year low, causing some analysts to scratch their heads after saying last week the bottom had been reached.

The three-month Singapore interbank offer rate (Sibor) fell 12.5 basis points to 1.25 per cent yesterday - a shade above the year low of 1.24 on April 22.

Analysts say they believe yesterday’s big move was due to intervention by the Monetary Authority of Singapore (MAS), which tried to cap the rise of the Singapore dollar.

‘The fall in the three-month Sibor may have been partly induced by MAS foreign exchange intervention,’ said Citigroup economist Kit Wei Zheng. ‘Our estimates suggest the Sing dollar has hovered at the strong side of the policy band since the start of the week, which has likely triggered MAS intervention.’

The MAS uses the exchange rate and has a strong Singapore dollar policy to fight inflation, which has reached a 26-year high. The Sing dollar rose to $1.36 against the US dollar yesterday, from $1.38 on Monday, said UOB analyst Ng Shing Yi.

But a strong Singapore dollar attracts capital inflows that put pressure on domestic interest rates, which in turn could whip up inflation further.

‘The main downside risk for three-month Sibor is a strong Singapore dollar,’ said Ms Ng. ‘With annual inflation this year likely to reach 6 per cent, MAS would likely prefer a stronger exchange rate, and that would cap Sibor gains.’

Analysts expect more whipsawing movements as MAS fights inflation with its strong Sing dollar policy while other central banks hike interest rates.

‘However I would not overplay that factor too much as I believe MAS will sterilise most of its foreign exchange interventions to moderate or neutralise the resulting downward pressure on interest rates,’ said Citigroup’s Mr Kit.

‘I doubt very much that MAS would want a further plunge in interest rates that could stoke domestic inflation pressure, especially not a time when headline inflation rates are entering uncharted territory.’

Ultimately, a more important determinant of domestic interest rates is probably foreign interest rates - not just US interest rates, but also rates in other economies that are an important part of the currency basket, Mr Kit said.

Ms Ng expects three-month Sibor to reach 1.50 by year-end. But HSBC economist Robert Prior-Wandesforde sees the rate going in the other direction.

‘We are not expecting a Fed hike before the end of this year and I’m still looking for the three-month Sibor to fall to one per cent over the next few months,’ he said. ‘With MAS thought to keep the Singapore dollar strong, this is encouraging foreign inflows, which in turn are depressing interest rates.’

Income, not interest, led to property boom

Source : Business Times - 30 Apr 2008

THE recent climb enjoyed by equity and property prices was driven more by strong economic growth than by low interest rates, according to a study by the Monetary Authority of Singapore (MAS).

Empirical research by MAS shows that economic activity exerts a larger influence on asset prices in Singapore than borrowing costs.

‘Asset price inflation reflects an underlying increase in income growth augmented in part by favourable sentiment towards domestic assets,’ says the study, featured in the MAS macroeconomic review report released yesterday.

The MAS report also says: ‘This linkage has been misunderstood by some analysts, who expressed concern that the increase in domestic liquidity, in and of itself, has fuelled the run-up in asset prices.’

Private housing prices increased by 31.2 per cent for 2007 as a whole, and some market analysts had felt that the central bank should raise interest rates to rein in property inflation.

This was because while overseas investors were driving property prices up, the inflow of foreign funds continued to add to domestic liquidity and kept borrowing costs low.

But as the MAS report mentions, ‘the factors behind the increase in liquidity are much more complex in view of Singapore’s monetary policy framework’.

Domestic interest rates have dropped since September last year as US interest rates fell and the Singapore dollar grew stronger.

The benchmark three- month domestic interbank rate fell by 144 basis points from August 2007 to 1.31 per cent at the end of March 2008.

As interbank rates fell, banks also started offering cheaper and more innovative mortgage packages.

Income, not interest, led to property boom

Source : Business Times - 30 Apr 2008

THE recent climb enjoyed by equity and property prices was driven more by strong economic growth than by low interest rates, according to a study by the Monetary Authority of Singapore (MAS).

Empirical research by MAS shows that economic activity exerts a larger influence on asset prices in Singapore than borrowing costs.

‘Asset price inflation reflects an underlying increase in income growth augmented in part by favourable sentiment towards domestic assets,’ says the study, featured in the MAS macroeconomic review report released yesterday.

The MAS report also says: ‘This linkage has been misunderstood by some analysts, who expressed concern that the increase in domestic liquidity, in and of itself, has fuelled the run-up in asset prices.’

Private housing prices increased by 31.2 per cent for 2007 as a whole, and some market analysts had felt that the central bank should raise interest rates to rein in property inflation.

This was because while overseas investors were driving property prices up, the inflow of foreign funds continued to add to domestic liquidity and kept borrowing costs low.

But as the MAS report mentions, ‘the factors behind the increase in liquidity are much more complex in view of Singapore’s monetary policy framework’.

Domestic interest rates have dropped since September last year as US interest rates fell and the Singapore dollar grew stronger.

The benchmark three- month domestic interbank rate fell by 144 basis points from August 2007 to 1.31 per cent at the end of March 2008.

As interbank rates fell, banks also started offering cheaper and more innovative mortgage packages.

MAS expects S’pore inflation to cool to 4% in second half

Source : Channel NewsAsia - 29 Apr 2008

The Monetary Authority of Singapore (MAS) has said it expects inflation, now at a 26-year high of 6.7 percent, to cool to an average 4 percent in the second half of this year.

Singapore’s central bank also said on Tuesday that economic growth will slow in 2008, but the expansion will likely remain at a healthy level even under a tighter monetary policy.

“Full-year gross domestic growth of between 4%-6% is still achievable, barring a sharp downturn in the US economy,” the MAS said in its semi-annual macroeconomic review, available on its Website www.mas.gov.sg. “The slower rate of expansion will bring the economy closer to its potential output path.”

Earlier in April, the MAS unexpectedly tightened its monetary policy by allowing the Singapore currency to rise at a faster pace to keep a lid on import costs.

The central bank manages the local dollar within an undisclosed currency band, which it shifted higher at its meeting on April 10.

“The re-centering of the policy band… will help to alleviate inflation pressures and provide support to the economy as it eases to a more sustainable growth rate,” the MAS said.

First-quarter GDP growth came in unexpectedly strong, running at an annualised seasonally adjusted rate of 16.9%, and economists said the data had calmed fears that the weakness of the US economy would drag on Singapore, giving the MAS room to tighten policy.

Singapore’s economy grew by 7.7% in 2007, when consumer prices rose 2.1%.

A recent jump in food costs has been a key driver of inflation across Asia, and a further acceleration in commodity prices could not be ruled out, the MAS said.

“Even if (food and oil) prices were to level off, upward pressure on wages and rentals, reflecting domestic capacity constraints, is likely to remain,” it said.

The MAS predicted inflation will peak at around 7% in the middle of the year before averaging in the upper half of a 4.5%-5.5% range for all of 2008.

Different sectors of Singapore’s economy will feel varying impacts from a global downturn, the MAS said.

“In contrast to last year’s broad-based growth story, the outlook for the Singapore economy in 2008 will vary significantly from industry to industry, depending on their exposure to the U.S.,” the authority said.

The construction sector will be relatively protected, with a steady pipeline of contracts, including S$24.5 billion in work awarded in 2007.

“This suggests a possible surge in construction activity over the next two to three quarters, as work on projects progresses into the phase where the bulk of payment streams occurs,” the central bank said. “Future demand should also remain firm, with contracts for major projects such as the integrated resorts yet to be fully awarded.”

Las Vegas Sands is expected to open the Marina Bay Sands resort in 2009, and a unit of Genting International will open Resorts World at Sentosa in 2010.

The MAS said the economy should also be supported by most of the services sector and selected manufacturers such as pharmaceuticals firms and offshore oil rig makers.

However, the electronics industry will be highly exposed to an external economic slowdown, likely preventing the sector from posting a meaningful expansion.

The financial sector is also expected to weaken if markets remain in a slump, leading to lower revenues from wealth management and brokerage services.

The MAS expects the job market to remain tight, with the unemployment rate holding beneath 2 percent. - CNA/ir