The Next Noble Group

[Hangover]

Noble Group crashed under its debts and dubious valuation of the commodities-related assets, dropping 90% since it's peak 12-months ago. China HNA group is one of the most aggressive acquisitor in modern business history, soaking at quality assets around the world but now sinking under the burden of refinancing their debts lately.

What other Singapore countries are embarking on such risky moves?

 

[Hangover]

Frasers Centrepoint (FCL)

FCL has been an household name in Singapore but since the Thai took over, FCL has been going around on an acquisition spree with an estimated S$12 billion of total debts (last reported $11.8 billion + $0.3 billion raised this month) by now. Local retail & commercial sector outlook is not expected to recover strongly in 2018 and the company has a huge exposure in Australia with slowdown in property prices reported lately. In recent years, the company depended on the monetization of assets through the launch of business trusts and reits, implying imploded desktop valuations in their books.

Due to the higher underlying risks, FCL's cost of financing than peers is relatively higher (not significantly), eg as Guocoland, Wing Tai, etc. FCL has one of the smallest free float in the market (appx 12%) which might artificially support their share price, trading at about 88% of their book value. (In comparison, WingTai 55%, Guocoland 70%)

 

[Hangover]

Frasers Centrepoint (FCL) has built up its total debt levels in the last twelve months, from $9.9billion to S$12billion based on the last financial report, which is made up of current and long term debt. However, FCL has produced only SGD944.6M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 8.00%, signalling that FCL's debt is not sufficiently covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets.

In the past five months, local banks increased property-financing rates by 0.4-0.5%pa, which is the steepest climb in recent memory.

It appears that FCL's cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. With debt level exceeding 90% of the company's equity, FCL is considered relatively highly geared. While such gearing level is not uncommon among property companies, we have to bear in mind that the book value of FCL's fixed assets appear to be more inflated than peers.