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Cash Rich Singapore Companies Set To Spend, Spend, Spend

The Motley FoolIf you thought the Great Financial Crisis has been bad news for Singapore companies then, I am afraid to say that you might be mistaken.

The financial crisis of 2007 was indeed terrible for global financial institutions. But at the same time it has been a godsend for some of Singapore’s biggest non-financial companies.

In 2006, before the unfolding of the financial crisis, Singapore’s largest non-financial institutions had around S$29 billion of cash in their coffers. By 2009, this had swelled to S$58 billion. And by the end of 2013, the cash pile had ballooned to almost S$70 billion.

STICashPileThe growth in their cash hoard has been thanks, in part, to Quantitative Easing, which has, in effect, cut the interest-rate burden for many companies.

Cash-rich companies include CapitaLand (SGX: C31), Keppel Corporation (SGX: BN4), Wilmar International (SGX: F34) and the Jardine Group of companies led by Jardine Matheson (SGX: J36).

Ever since monetary easing was introduced by a number of central banks around the world, Singapore companies with solid credit ratings have been able to refinance their loans at a cheaper rate. Additionally, unusually low inflation has helped to keep a lid on operating costs. The upshot is that Singapore businesses have plenty of cash at their disposal to unleash, as and when they wish.

Over the last seven years, stock market investors have been some of the main beneficiaries of the abundance of cash held by Singapore companies.

In 2006, the total amount of common dividends paid out to shareholders by Straits Times Index (SGX: ^STI) companies totalled S$6 billion. By 2009, this had grown to S$10 billion. Last year, investors collectively received as much as S$13 billion in dividends from their investments in Singapore’s 30 largest companies.

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Meanwhile, capital expenditure, which is the lifeblood of growth for any business, has been worryingly subdued.

One reason that is often used for the lack of investment has been poor visibility.

In other words, when companies are unable to see a good reason to invest, they, understandably, keep their purses tightly zipped. Consequently, capital expenditure, which stood at S$14 billion in 2008, remained largely stagnant for the next two years. It grew to S$18 in 2011 and has remained largely unchanged since then.

The lack of investment might be due to – though some mighty say the cause of – low revenue growth. Over the last three years, revenues at Singapore’s largest non-financial companies have barely grown.

In 2011, total revenues came in at S$391 billion, while in 2013 it was S$424 billion. However, with signs that the global economy is starting to show tangible signs of recovery and consumers around the globe beginning to indicate a renewed confidence to spend, Singapore companies might also be more willing to open up their wallets.

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Renewed spending by Singapore companies is indeed welcome. More spending means more money sloshing around the economy, more jobs created and more disposable income for everyone.

It can be a virtuous circle that helps to drive much-needed growth. But the downside is inflation. For those who have been wondering as to why inflation has been noticeably absent despite the unprecedented amount of money that has been created, they may not have to wait long to find out.

A version of this article first appeared in the Independent on Sunday.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn't own shares in any companies mentioned.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.