Singapore companies’ debt surge in 2024: Sustainable or risky gamble?

SINGAPORE – Companies in Singapore borrowed more to fund their businesses in 2024, taking advantage of favourable conditions and stronger investor appetites.

The corporate debt market grew in 2024, with new debt issuances jumping 34 per cent year on year to $308 billion, the Monetary Authority of Singapore (MAS) noted in an Aug 8 report.

Short-term non-Singdollar debt with maturities of one year or less led the surge, making up almost 60 per cent, or $182 billion, the largest segment of new corporate borrowings.

Growth in Singdollar bond issuance was broad-based across financial institutions (FIs), corporates and statutory boards, supported by favourable interest rates as well as tighter credit spreads, meaning the extra interest investors demand for lending to riskier borrowers has become smaller, showing they see those borrowers as safer.

Corporates, including property companies, issued $4.1 billion more in Singdollar debt than a year earlier, while statutory board issuance rose $6.1 billion. Analysts said the increases reflected both a rebound in economic activity and the continued attraction of Singapore’s debt market.

While the share of Singdollar issuance by FIs fell 9.9 per cent year on year, they were particularly active in the non-Singdollar market, where their share rose 23.7 per cent and issuance volumes jumped $92 billion. Debt was issued in a range of currencies, including US and Australian dollars, British pound, euros, yuan and Hong Kong dollars, to fund business needs.

Global names also chose Singapore for sizeable US dollar-denominated bond sales, with IBM International Capital, for instance, raising US$5.5 billion (S$7 billion), and PepsiCo US$1.75 billion.

On the whole, total outstanding debt arranged by FIs in Singapore registered a 9 per cent year-on-year increase to $617 billion as at end-2024, MAS data showed. 

Ms Ellyn Tan, a partner for financial advisory at professional services firm Forvis Mazars, said 2024 marked a turning point for many businesses, as the economy moved further away from pandemic-era disruptions.

“For companies that made it through, raising funds became essential, whether to bounce back or to pursue growth,” she said.

But she cautioned that the rise in debt warrants closer scrutiny. “The key question is whether this increase is funding expansion or just refinancing older loans. An overall increase can signal growth, but we need to assess if these are truly ‘good loans’.”

Each loan carries its own risk profile, Ms Tan added.

Borrowing to fund working capital due to longer collection cycles, for example, may be only a temporary fix.

“At some point, the problem will catch up with the company,” she warned.

OCBC Credit Research said corporate debt levels in the Singdollar bond market remain generally sustainable. Main risks include repayment pressures from weaker operating conditions and currency mismatches between assets and liabilities.

“Within the Singdollar credit market, we have seen resilient issuers,” it said, citing how they have a lack of direct exposure to trade tariffs, stable Singapore-based operations, and strong banking relationships.

It added that while some issuers are exposed to weaker overseas markets such as China, performance from local assets has so far offset foreign losses and currency impacts from a stronger Singdollar.

OCBC noted that debt issuance sentiment was strong globally in 2024, particularly in the US, European Union, and Asia ex-Japan markets. Favourable corporate earnings, investor appetite for yield amid still-elevated rates and tight credit spreads spurred activity.

Credit spreads across major markets remain substantially tighter than their 10-year averages, it said.

The rebound in the corporate debt market comes amid higher interest from investors looking to diversify capital.

UOB head of debt capital markets Carolyn Tan said recent new issues have been “well-subscribed with extensive investor coverage” as investors sought yields in the fixed income markets.

“With lower Singdollar interest rates, we have recently seen a flurry of issuance from corporates, real estate investment trusts and financial institutions tapping the Singdollar bond market, across both senior bonds and perpetual securities,” said Ms Tan. Senior bonds are debt instruments that have priority over other types of debt when it comes to repayment if the issuer defaults or goes bankrupt. Perpetual securities, or perpetuals, have no fixed maturity date.

Apart from institutional investors, a “good amount of liquidity is also coming from private banking and wealth banking investors”, she noted.

Ms Tan of Forvis Mazars noted that while corporate bonds offer higher returns than government bonds, they also carry higher risks.

“Most corporate bonds are raised to fund growth projects, but there’s no guaranteed fail-safe project. Every investment carries its own risks,” she said.

OCBC expects retail interest in corporate bonds to remain selective, with investors favouring well-known, high-quality companies.

They noted that in Singapore, retail interest in corporate bonds is capped by limited supply, with most seeking safety in sovereign bonds, such as US Treasuries or Singapore government securities.

However, they noted that options for retail investors are becoming more accessible, with the latest Astrea 9 private equity-backed bond launched by Azalea Investment Management seeing record retail demand in August.