What Financial Risks Might StarHub Ltd Be Facing Right Now?

The Bank of International Settlements had released its latest annual report only a few days ago.

The bank is considered to be the bank for central banks and it warned in the report that the global economy is facing a “risky trinity” of “productivity growth that is unusually low, global debt levels that are historically high, and room for policy manoeuvre that is remarkably narrow.”

Put another way, global economies now have low productivity, high debt, and central banks that only have a few options to work with to stave off any future problems. The point about central banks’ diminishing effectiveness means that companies have to depend on their own balance sheets to ride out future market and economic volatility.

So, investors may want to focus on the strength of a company’s balance sheet when they are investing.

I thought it’d be interesting to see which blue chip stock in Singapore (the 30 constituents of the Straits Times Index (SGX: ^STI)) has the highest debt to equity ratio at the moment. With data from S&P Global Market Intelligence, it turns out that StarHub Ltd (SGX: CC3) is the company with the highest debt to equity ratio at 244% (I had excluded banks, real estate investment trusts, and business trusts).

For perspective, StarHub’s industry peers, the telcos Singapore Telecommunications Limited (SGX: Z74) and M1 Ltd (SGX: B2F), have debt to equity ratios of 40% and 71%, respectively.

StarHub has maintained debt to equity ratios of triple-digit percentages or more for many years, according to S&P Global Market Intelligence. But, it’s something that investors may want to keep in mind given (1) the “risk trinity” the world is facing and (2) the potential entry of a fourth player in Singapore’s telecommunications industry in the near future.

Generally speaking, the presence of high debt reduces the ability of companies to navigate through challenging environments.

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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 contributor Ong Kai Kiat does not own shares in any companies mentioned.