Expectations are for the US Federal Reserve to raise the Fed Fund rate in 2H2015. This should correspondingly lead to higher Singapore interest rates as well. We identified listed corporates which have relatively high gearing and low interest cover and highlight here how some of them will be affected.
■ We expect Singapore interest rates to trend up. The 3-month SIBOR is highly correlated with the US Fed Fund rate. With the US Federal Reserve’s Wed 17 Jun statement on track for a rise of the Fed Fund rate in 2H15, the 3-month SIBOR could also see some upside going forward.
■ The premium of Singapore 10-yr government bond yield over the US equivalent since late 2014 is likely to persist. This would keep the Singapore 10-yr government bond yield high. Corporates in need of funding may need to pay higher interest costs before they can raise the required funds.
■ Higher Singapore interest rates are negative for corporates with high gearing.
Whilst we note that there could be other considerations, we see this as a first filter to pick out relevant companies. Some of these companies could experience higher funding costs with a rise in the Singapore interest rate.
■ Some high geared corporates are cushioned.
Source : RHB Research