SINGAPORE: A 2025 outlook from an OCBC Credit Research report on Dec 6 noted that SGD credit spreads are trading more tightly in the secondary market than historical trends.
Interest rates are also expected to stay flat or decline next year, as reported by The Edge Singapore.
The report highlighted that the Monetary Authority of Singapore’s proposed changes for S-REITs, including a minimum interest coverage ratio of 1.5x and a single aggregate leverage limit of 50%, gave S-REIT managers more flexibility to manage capital and pursue growth plans with higher debt capacity.
It also stated that aggregate leverage is expected to stabilise at 43%-44%, with an interest coverage ratio (ICR) of about 1.8x becoming the market’s new “line in the sand”.
The report noted that investors would likely favour S-REIT managers with financial discipline and meet the market’s view of S-REITs as low-risk investments providing stable returns.
For developers, profitability and interest coverage are expected to improve if interest rates and costs fall. However, the OCBC report noted that the future of their credit metrics will depend on their willingness to leverage their balance sheets.
Bloomberg reported that Hongkong Land may or may not sell MCL Land at a premium to its book value of S$1.1 billion. According to OCBC Credit Research, MCL Land’s portfolio includes prime residential projects in Singapore and Malaysia.
Key developments in Singapore are Copen Grand, Leedon Green, Parc Esta and Margaret Ville in Singapore, and Piccadilly Grand. In Malaysia, Quinn, Seri Riana and Riana Green East in Wangsa Maju, Kuala Lumpur, and Sfera.
On Oct 29, Hongkong Land announced its plans to shift focus from property development to recurring income from investment properties and active asset management.
This decision follows challenges related to its large exposure to development properties in China, which have negatively impacted the company’s financial performance and capital.
OCBC Credit Research pointed out that Hongkong Land’s net asset value has steadily declined over the past five years, falling from US$16.30 (about S$21.88) in 2018 to US$14.49 (about S$19.45) at the end of 2023.
As of June 30, Hongkong Land’s assets in Investment Properties and Development Properties stood at US$31.7 billion (about S$42.55 billion) and US$9.6 billion (about S$12.89 billion), respectively.
By Dec 31, 2023, its Development Properties were mainly in mainland China (82%), with 16% in Southeast Asia, mostly in Singapore, and 2% in Hong Kong.
The Straits Times Index (STI) rose 45 points between Dec 2 and 6 to close at 3,796. On Dec 5, it reached a six-year high of 3,822, last seen in 2018 when it hit 3,876.
While negative divergences have appeared between the STI and its short-term Relative Strength Index (RSI), this is not a concern as the RSI hasn’t dropped below support.
Quarterly momentum also showed a negative divergence with the index but has not moved below an uptrend. A drop below key supports would signal weakness.
On Nov 7, a breakout at 3,640 suggested a target of 3,980, which remains valid. Support has now been raised to 3,660. /TISG
Read also: Straits Times Index could hit 3,950 by end-2025, says DBS report
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