Australia's AAA rating is back under the microscope

Australia's AAA rating is back under the microscope

By: 
Bloomberg
09/05/17, 07:43 am

SYDNEY (May 9): Australia’s AAA rating is again under the microscope as the government prepares to deliver a budget Tuesday that appears long on spending pledges and short on savings.

Of the 10 holders of the top score from the three main rating companies, Australia is the only one that’s increased its debt pile in the past three years. S&P Global Ratings put Australia on negative outlook in July following a knife-edge election that saw the government scrape together a lower house majority. The ratings company said pushing through savings would likely prove difficult and despite some successes, that’s largely been the case.

“We do look more vulnerable compared to the other countries with a AAA,” said
David Goodman, executive director of strategy at Westpac Banking Corp. “The
balance of risks are definitely tilted to the downside.”

Australia’s struggle to balance its books has been complicated by recession-level wage increases and weaker growth as the economy adjusts to the end of a mining investment boom. On the plus side, a spike in commodity prices this fiscal year should boost the corporate tax take. Moreover, a synchronized upswing in global growth is likely to favor Australia, particularly if key trading partner China’s economy keeps powering along.

Economists predict a A$28 billion ($29.1 billion) budget deficit in the year through June 2018, about A$700 million less than the government forecast in its December update. Lawmakers also predicted a return to surplus in 2021.

Treasurer Scott Morrison has sought to alter the budget dynamics this year by distinguishing between good debt -- used to fund spending on infrastructure that generates income or increases productivity -- and bad debt -- used to plug revenue shortfalls to pay for items like welfare and health. What remains to be seen is whether rating companies dismiss the differentiation and simply look at the increased overall liabilities.

Still, not everyone is convinced a AAA downgrade is imminent.

“The critical point is that the government’s increased spending, both ‘on budget’ and ‘off budget,’ will not be so large to threaten a projected return to surplus,” said Cherelle Murphy, a senior economist at Australia & New Zealand Banking Group Ltd. “Debt will remain serviceable. Critically, the improvement in Australia’s external position acts as an offset to a modest deterioration in the fiscal position.”

While the government has set out a range of spending measures -- from efforts to boost housing affordability to a variety of infrastructure projects -- the main savings measure is a cut in funding arrangements for universities.

“S&P are looking for savings measures,” said Westpac’s Goodman. “We still think a downgrade is more likely than not.”

SYDNEY (May 9): Australia’s AAA rating is again under the microscope as the government prepares to deliver a budget Tuesday that appears long on spending pledges and short on savings.

Of the 10 holders of the top score from the three main rating companies, Australia is the only one that’s increased its debt pile in the past three years. S&P Global Ratings put Australia on negative outlook in July following a knife-edge election that saw the government scrape together a lower house majority. The ratings company said pushing through savings would likely prove difficult and despite some successes, that’s largely been the case.

“We do look more vulnerable compared to the other countries with a AAA,” said David Goodman, executive director of strategy at Westpac Banking Corp. “The balance of risks are definitely tilted to the downside.”

Australia’s struggle to balance its books has been complicated by recession-level wage increases and weaker growth as the economy adjusts to the end of a mining investment boom. On the plus side, a spike in commodity prices this fiscal year should boost the corporate tax take. Moreover, a synchronized upswing in global growth is likely to favor Australia, particularly if key trading partner China’s economy keeps powering along.

Economists predict a A$28 billion ($29.1 billion) budget deficit in the year through June 2018, about A$700 million less than the government forecast in its December update. Lawmakers also predicted a return to surplus in 2021.

Treasurer Scott Morrison has sought to alter the budget dynamics this year by distinguishing between good debt -- used to fund spending on infrastructure that generates income or increases productivity -- and bad debt -- used to plug revenue shortfalls to pay for items like welfare and health. What remains to be seen is whether rating companies dismiss the differentiation and simply look at the increased overall liabilities.

Still, not everyone is convinced a AAA downgrade is imminent.

“The critical point is that the government’s increased spending, both ‘on budget’ and ‘off budget,’ will not be so large to threaten a projected return to surplus,” said Cherelle Murphy, a senior economist at Australia & New Zealand Banking Group Ltd. “Debt will remain serviceable. Critically, the improvement in Australia’s external position acts as an offset to a modest deterioration in the fiscal position.”

While the government has set out a range of spending measures -- from efforts to boost housing affordability to a variety of infrastructure projects -- the main savings measure is a cut in funding arrangements for universities.

“S&P are looking for savings measures,” said Westpac’s Goodman. “We still think a downgrade is more likely than not.”

Singapore Shipping Corp FY19 earnings edge up 1.4% to US$10.6 mil

SINGAPORE (May 23): Singapore Shipping Corp (SSC) reported a 19.2% rise in 4Q19 earnings to US$3.1 million from US$2.6 million in 4Q18. This brings FY19 earnings to US$10.6 million, up 1.4% from a year ago. SSC’s ship owning business reported flat 4Q revenue of US$8 million while 4Q profit rose 10.6% to US$2.7 million. Its Agency and logistics business reported a 32.1% rise in 4Q revenue to US$4.5 million although profit fell 4.3% to US$0.76 million. Results from operating activities fell 1.1% to US$3.2 million. The company has proposed a final dividend of 1 cent per share. In....
Read More >>

SIA kept at 'buy' with transformative journey improving profitability

SINGAPORE (May 23): DBS Group Research is maintaining Singapore Airlines at “buy” with $10.80 target price on expectations of improvement in SIA’s profitability in FY20 as it carries out its transformative journey and valuations stay undemanding. DBS credits SIA’s transformation programme for making a difference with revenue growth finally returning after years of stagnation and cost management efforts also bearing fruit. This is evident in SIA posting stronger profit performance in 2H19 compared to 1H19. In addition, although jet fuel prices have rebounded to US$85/bbl currently....
Read More >>

Annica chairman Ong quits just as JLC senior partner goes missing with $33 mil of clients' money

SINGAPORE (May 23): Jeffrey Ong, chairman of Annica Holdings, has quit with immediate effect on May 20. Ong is also the managing partner of boutique law firm JLC Advisors. According to a Business Times report, some $33 million, believed to belong to Allied Technologies, has gone missing from the clients’ accounts of the law firm. See also: Allied Tech's $130 mil purchase of dorm operator aborted amid news of missing funds At the same time, an unnamed “senior partner” of JLC, has become uncontactable, reported the paper. Ong first joined Annica’s board back in July 2008 and ....
Read More >>