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These Firms May Have Difficulties with Borrowing Costs in Singapore Rising

As I wrote yesterday, “borrowing costs for companies in Singapore may be on the rise.” Last Thursday, The Straits Times had reported that the three-month Singapore swap offer rate (SOR), “a market benchmark for commercial loans,” has quadrupled from 0.2% a year ago to 0.8%.

I won’t know if interest rates for commercial loans would continue climbing, but I wanted to see which companies in Singapore’s stock market might run into trouble if that really does happen.

To achieve my aim, I specifically looked for locally-listed firms which have (1) high total debt to equity ratios of at least 100%, (2) a growing total debt to equity ratio over their past three financial years, and (3) negative operating cash flows over the same period.

These criteria are important because they help me sieve out firms which have high and growing debt-loads, and a historical inability to produce cash from their business operations. In particular, the latter may not bode well for their future ability to churn out cash and that can be dangerous especially when interest payments may increase in the future.

While the list below is far from exhaustive, the quartet of Aspial Corporation (SGX: A30), Cosco Corporation (Singapore) Limited (SGX: F83), Maxi-Cash Financial Services Corp Ltd (SGX: 5UF), and TEE International Limited (SGX: M1Z) belong to a group of shares with those particular characteristics. You can see this in the table below:

Financials for Aspial, Cosco, Maxi-cash, TEE International

Source: S&P Capital IQ

With all that said, this does not mean that the quartet would certainly be in trouble if commercial interest rates in Singapore would continue to climb. For instance, their borrowings over the past few years may have been used to fund initiatives which would lead to sizeable growth in their businesses and more than offset any of the destructive effects of pricier debt.

But, given what we’ve seen, investors in Aspial, Cosco, Maxi-Cash, and TEE International might want to keep a close watch on them in case they do run into financial difficulties in the future due to potentially heavier borrowing costs.

For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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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 writer Chong Ser Jing doesn't own shares in any company mentioned.