S&P Global Ratings said the default of troubled water and power company, Hyflux, could be the"first wagon in a train of financial distress cases" to come in Singapore, as lending conditions adjust to the economic slowdown and become less favourable.
"Due to very low rates and yields in the past five years, Singapore investors, both institutional and retail, have sometimes opted for riskier bonds, to increase cash returns. Lending appetite driven by abundant liquidity has allowed less-established, often smaller companies to tap the market. Such players are typically more vulnerable to economic up and downs," said S&P.
Secondly, situations can evolve quickly for companies with narrow or uncertain earnings quality, S&P said. This means that lenders should do their due diligence before, and surveil their money after investing. Thirdly, losses can be harsh depending on the characteristics of debt instruments outstanding. This is because the market has seen the introduction of complex debt instruments compared with senior unsecured notes, S&P said.
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