Casinos, other large projects push up cost of loans: OCBC
SINGAPORE’S two casinos and other large projects will add S$30 billion to loan demand this year, pushing up the cost of corporate loans in the city-state, said Oversea-Chinese Banking Corp on Wednesday.
Las Vegas Sands and Genting International have each borrowed about S$5 billion to build casinos, while developers will need billions to pay for residential sites purchased for redevelopment, OCBC’s head of group investment banking George Lee told Reuters.
‘The supply of Singapore dollars is going to get tighter while demand is exceptionally high… Credit spreads are going to rise and those used to borrowing at X must get used to borrowing at X plus something,’ said Mr Lee in an interview.
According to Monetary Authority of Singapore data, loans to businesses rose 27 per cent to S$130.5 billion in January from a year ago, spurred by a 46 per cent increase in building and construction loans to S$39.3 billion.
Other projects that require funding this year include an estimated S$2-2.5 billion to finance the purchase of electricity generator Tuas Power from government fund Temasek Holdings, and the refinancing of a loan to buy the building housing Singapore’s biggest bank DBS Group .
Turning to neighbouring Malaysia, which companies are looking to for lower-cost borrowings, Mr Lee said firms planning to tap the corporate bond market will see this as viable only if they have projects in Malaysia.
For companies hoping to take the borrowings overseas, any savings would be offset by the sharp rise in the cost of swapping ringgit into dollars or other foreign currencies.
While the cost of borrowing in ringgit remains extremely attractive, the swap premium has widened from 20-30 basis points late last year to about 100 basis points now, he said.
Malaysia opened its ringgit bond market to foreign corporate issuers in October, coinciding with the outbreak of the global credit crisis that has raised the cost of dollar-denominated debt.
On Monday, Export-Import Bank of Korea (KEXIM) became the first foreign firm to take advantage of the new rules by selling a total of RM1 billion (S$437.8 million) in five- and 10-year bonds.
The deal, which KEXIM said shaved 20-30 basis points off its borrowing cost, was handled by OCBC along with Malaysia’s RHB and CIMB.
OCBC, Singapore’s third largest bank, is also in the process of selling up to RM2.5 billion in lower Tier 2 bonds to augment its capital base.
Mr Lee said it made sense for OCBC to borrow in ringgit as it had operations in Malaysia and did not intend to exchange the proceeds from the bond issue to Singapore dollars .
‘For those with natural ringgit assets without the need to swap, it still makes sense,’ he said.
Source: Reuters (Business Times 7 Mar 08)