Shoppers pay 0%, retailers 10% as higher borrowing costs hit embattled sector

Retail store sales in Singapore dropped for a third month in November, Department of Statistics data show.
Retail store sales in Singapore dropped for a third month in November, Department of Statistics data show.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Families buying televisions are getting lower borrowing costs than the stores selling them, a reflection of the toll taken on South-east Asia retailers by flagging consumer demand and e-commerce rivalry.

Courts Asia Ltd, which offers shoppers zero per cent long-term credit on higher-end products, has seen its Singapore dollar bond yields rise 28 basis points to 4.34 per cent in the past six months and is trying to refinance the note ahead of its May repayment. The yield on US currency bonds of Parkson Retail Group Ltd, part of a Malaysian retailer which operates across South-east Asia, has soared 320 basis points to 10.21 per cent.

Flagging global growth and rising household debt is knocking consumer demand across South-east Asia, with Indonesian phone seller PT Trikomsel Oke in November becoming the first company to default on Singapore dollar bonds since 2009.

Retailers that borrowed to finance growth are also losing ground to online market places like Alibaba. The median debt load of the region's retailers rose to 1.75 times operating profit in latest filings compared with 1.3 at the end of fiscal 2014.

"I have been very careful about some local currency corporate bonds," said Singapore-based Desmond Soon, co-head of investment management for Asia at Western Asset Management Co., which had US$446 billion (S$641.3 billion) under management at Sept 30 and held Courts Asia bonds as of Nov 30, according to Bloomberg-compiled data. "Bricks and mortar retailers do have an issue," Mr Soon said, adding the money manager isn't likely to buy Courts' potential new offering.

Retail store sales in Singapore dropped for a third month in November, falling 2 per cent from a year earlier, Department of Statistics data show. Meanwhile, online transactions in the region are growing. Singapore Post's domestic e-commerce orders in South-east Asia and Australia rose 384 per cent in the twelve months through November, according to a company presentation.

Courts Asia, which sells goods from electronics to home furniture in Singapore, Malaysia and Indonesia, began meeting investors last week ahead of its scheduled S$125 million repayment of notes in May. It's looking to raise funds to help refinance and repay the bond, Courts's Singapore-based spokesman Tammy Teo said by phone.  The company had S$107 million of cash and S$263 million of short-term liabilities at Sept 30, according to its latest quarterly report.

"Everyone recognises that the retail sector for South-east Asia markets will continue to be a bit challenging in the short- term," said Ms Teo. "But if investors look across the medium and long-term, the prospects are still there."

The financial position of Hong Kong-listed Parkson Retail, which is majority-owned by Kuala Lumpur-based Parkson Group, remains "strong" with cash balances of 3.7 billion yuan (S$811.4 million), said the group's external press representatives at Bell Pottinger. While it has no plans for fund-raising this year, the firm will be "more than happy" to seize any opportunities to lower the group's borrowing costs.

Potential debt investors may not be encouraged by 24 year-old student Samuel Ng, who says that young Singaporeans rarely visit physical outlets.

"No one buys at the store, unless it's urgent," he said via a Samsung S4 phone that was bought on shopping app "Generally, mobile phones are cheaper online."

The changing habits are reflected in stock and bond prices. On average, the shares of South-east Asia's listed department and electronics stores shed 21 per cent of their value over the last year, and the prices of all bonds issued by the companies are down.

Courts is building up its online presence as it looks to explore all avenues to boost sales, said spokesman Ms Teo. For now, less than 3 per cent of its revenue comes from the web.

"A key emerging risk, especially for Singapore, is the advent of e-commerce," said Hasira de Silva, a Singapore-based analyst at Fitch Ratings. That's "likely to have an impact on the long-term profitability of retailers that don't have a strong online sales platform."