How Singapore’s $5.1b solidarity budget could tide over tough times

Changi Airport is one of the first to announce a 50% rental rebate for all of its tenants.

How Singapore’s $5.1b solidarity budget

Following the $48.4b Resilience Budget on 26 March and the $6.4b Unity Budget in February, Deputy Prime Minister and Finance Minister Heng Swee Keat announced the Solidarity Budget of $5.1b. This brings the total stimulus to $59.9b, which is about 12% of Singapore’s GDP, according to OCBC Investment Research (OIR).

With the latest measures, the overall budget deficit for FY2020 will increase to $44.3b or 8.9% of GDP. To get a sense of how significant this is, in FY19, Singapore saw a deficit of $1.7b, which was just 0.3% of GDP.

To further support the country during the four weeks when the circuit breaker measures are in place, the Solidarity Budget aims to save jobs, and protect the livelihoods of people during this temporary period of heightened measures.

There will also be help for businesses to preserve their capacity and capabilities, to resume activities when the circuit breaker is lifted. In addition, there will be direct cash in hand for households, to help tide families through this difficult period. Should the circuit breaker be extended beyond four weeks, we believe there could be a possibility for further measures.

All in, the measures that the Singapore government is taking would be a supportive factor for the domestic equity market, and this latest Solidarity Budget is meant to tide the country over these four weeks. Should the circuit breaker last longer than expected, further measures may be required.

Helping where it hurts most

In this Solidarity Budget, the bulk of the money will be spent on labour retention, waiving foreign worker levy, the Self-employed Personal Income Relief Scheme (SIRS), amongst others. Such relief measures, such as the enhanced job support schemes (higher wage subsidies) and the waiving of foreign worker levy due in April, are believed to further insure against the risks of longer-term harm on the domestic labour market and corporate margins due to the COVID-19 outbreak.

All in, the measures that the Singapore government is taking would be a supportive factor for the domestic equity market, but key drivers are still the global COVID-19 trajectory and impact on overseas markets, given Singapore’s small and open economy.

On the S-REITs’ side, one of such measures taking place is the Enhanced Jobs Support Scheme, which is expected to provide more buffer to underlying tenants’ cash

could tide over tough times

Analysts are coining that the property, retail and financial sectors may drag Singapore’s GDP down, so the government has been ramping up its citizen’s spending power.

All in, the measures that the Singapore government is taking would be a supportive factor for the domestic equity market.

Overall, whilst capital positions of Singapore banks remain solid, the sector is projected to face continued headwinds in 2020.

CDL allotted over $17m of property tax and rental rebates.

flows. The higher wage subsidies and waiver of monthly foreign workers levy due in April as mentioned in the earlier section would provide additional support for businesses.

Awaiting details of the new Bill to be introduced by Singapore’s Ministry of Law (MinLaw) on deferral of rental payments. MinLaw had announced on 2 April that it would be introducing a COVID-19 (Temporary Measures) Bill in Parliament, with the aim of providing temporary relief to businesses and individuals who are not able to fulfil their contractual obligations due to COVID-19.

The introduction of this new Bill will reveal whether there would be any safeguards for landlords should a tenant enter into insolvency after the rent deferment period of six months. It will also make it mandatory for property owners to pass on the property tax rebate to be received in full and in a timely fashion to tenants.

“Given the uncertainties over the details of the new Bill to be passed, we continue to believe that REITs and Business Trusts with higher earnings visibility include Keppel DC REIT and NetLink NBN Trust,” OIR’s equity research team wrote.

Favour grocery names

Under the enhanced Care and Support package, all Singaporeans aged 21 and above will receive a oneoff cash payment of $600, namely the solidarity payout, i.e. an additional $300 cash payout on top of the $300 cash announced previously. The government will also bring forward some cash payouts from August/ September to June 2020 to provide timely support to needy families.

Together with the $400 grocery vouchers and $3,000 cash payout for lower-wage workers announced earlier, OIR noted that there will likely be a positive spillover effect in spending, and supermarket operators like Sheng Siong are likely the key beneficiary.

Supermarkets and hypermarkets sales rose 15.5% YoY in February compared to the 8.6% decline in Singapore’s overall retail sales. “We observed a similar trend during SARS and believe that supermarkets sales are likely to be more defensive during a pandemic,” OIR added.

Cushioning loan deteriorations

The focus of all of these measures remains very much on helping to broaden the support rendered across sectors and households. For the banking sector, DPM Heng reiterated key highlights announced by the Monetary Authority of Singapore last 31 March, with a fresh item of an increase in the government’s risk sharing under the Enhanced Financing Scheme from 80% to 90%

for trade loans initiated from 8 April 2020 to 31 March 2021.

Under the proposed MinLaw bill, select loans and facilities granted to SMEs may also be given relief from legal action for six months (with possibility to lengthen the period to 12 months). However, OIR stated that support measures provided are on an opt-in basis, not an automatic moratorium, with deferments increasing future obligations.

Increased support from the government in ensuring cash flows to those whose livelihoods are affected by the pandemic (subject to pre-conditions) may help to cushion the pace of loans’ deterioration. Overall, whilst capital positions of Singapore banks remain solid, the sector is projected to face continued headwinds in 2020, from low interest rates and a challenging growth environment, which implies downside risks to earnings estimates and dividends.

However, the report added that asset quality risks should also increase and credit management will be key for the sector as banks are expected to book forward looking provisions, in line with IFRS9 (International Financial Reporting Standards). “Within the sector, we maintain our relative preference for UOB which is expected to be relatively less rate sensitive (vs DBS) and offers more attractive long term valuations (already breached the past global financial crisis trough of 1x price/ book). Singapore banks are expected to provide updated guidance in the upcoming Q1 reporting season, which starts with DBS on 30 April.”