Singapore companies, highly exposed to slowing global trade and a lackluster commodity market, face a financing scramble in 2017, as more than $12 billion of their bonds falls due and banks grow wary of lending to the resources sector.
That could trigger more blood-letting in a market that has already seen some high-profile corporate defaults, such as oil services firm Swiber Holdings, which hit the skids in July and went into judicial management this month.
It has also seen an increase in the number of bond issuers trying to renegotiate the terms of their credit to stay afloat, a disturbing signal in a market skewed to retail buyers and smaller issues subject to light scrutiny.
Corporate leverage has risen to increasingly risky levels, according to credit analysts and investors, while banks are becoming more circumspect about extending financing as the quality of their loan books causes concern.
Between now and the end of 2017, according to Reuters data, US$12.4 billion of bonds falls due, but corporate balance sheets in the city state are looking strained.
A Reuters study of 228 non-financial companies' half-year earnings shows that 74 had net debt more than five times their core profit, a level that usually prompts concern among credit analysts, and more than a third of that group were at least twice that level.
"We had not seen Singapore dollar corporate defaults since 2009, but suddenly we see a pick-up in defaults in 2015-2016. This is a warning sign about a refinancing confidence crisis across many sectors, not just commodity-related ones," said Raymond Chia, Head of Credit Research for Asia ex-Japan at Schroders Investment Management.
The structure of Singapore's capital markets has left them particularly vulnerable as global trade cools and Chinese growth slows. Commodities have been a mainstay after a frothy 2013 and 2014, and private banking has loomed large, fueling smaller bond deals.
In 2014, private banks accounted for almost half of investments into Singapore dollar corporate debt, a central bank report said last year.
Their participation has helped encourage smaller issues that are not assessed by credit rating agencies and yet are targeted at private wealth investors, analysts say.
"Their bond issues are also mostly unrated, so the layer of scrutiny provided by rating agencies is missing. Many of these deals were mispriced: they priced like investment grade even though they had high-yield profiles," said Harsh Agarwal, Head of Asia Credit Research at Deutsche Bank.
That is now changing - at considerable cost for firms.
Property firm Oxley Holdings, whose short-term debt dwarfs its cash balance, according to its latest accounts, saw yields on its bonds due 2019 jump 220 basis points to 7.5 percent in the past quarter.
And banks, under pressure to increase provisions for bad loans, are pulling back from indebted sectors like real estate, commodities and oil and gas, which dominate Singapore's outstanding S$53 billion ($38 billion) of local currency corporate bonds.
Non-performing loans have risen at all Singapore's three banks in the latest quarterly results, reflecting a decline in loan quality across sectors.
"In the absence of further bank support, refinancing this debt may prove difficult, potentially leading to more defaults over the next year," said Devinda Paranathanthri at UBS Wealth Management, which estimates S$18 billion of local currency denominated bonds are coming due over the next 18 months. Over a quarter are from sectors facing structural headwinds.
The latest sign of strain has been an increase in borrowers asking bondholders to cut them some slack.
Ezra Holdings, Rickmers Maritime, Otto Marine and Marco Polo Marine are just some of the companies that sought bondholder consent this year to loosen the conditions, or covenants, attached to their loans.
"It will continue to be busy, but the question is whether loosening covenants will be adequate to give these companies the lifeline that they need," said Kevin Wong, Singapore-based partner with law firm Linklaters.
"There is a risk these consent solicitations may lead to full-blown debt restructurings."