Credit rating agency Moody’s assigned its strongest rating to the Housing and Development Board (HDB), citing its close integration with national policies, as well as the strong fiscal oversight and financial support offered to the housing agency by the Singapore Government.
Apart from the Aaa rating for the HDB, which is on par with the rating assigned to the Singapore Government, Moody’s also issued a provisional (P)Aaa rating to HDB’s S$32 billion Multi-currency Medium Term Note (MTN) programme.
“The ratings reflect HDB’s strong and close linkage with the government of Singapore (Aaa, stable) and our view that, if required, liquidity support would be forthcoming from the government,” said the credit rating agency in a press release issued on Thursday (Oct 15).
“Given the key policy role that the HDB plays in the provision of housing and its related social objectives, and the close oversight and involvement of the government in its operations, we believe that the rating of HDB should be the same as the government of Singapore.
“HDB’s function as a policy arm of the Singapore government and its status as a statutory board created by the government are clear indications of its integration with the government and therefore supports the link in their credit quality.”
Moody’s noted that the HDB’s role extended beyond being just the primary public housing arm of the government of Singapore, but also to promoting the government’s social objectives, “including encouraging married people to have children, caring for the elderly, fostering multi-generational households and ensuring social cohesion”.
Also contributing to the top-level rating is the fiscal oversight applied by the Government, with control exercised through board members and Chief Executive Officer who are appointed by the Minister for National Development and with the President of Singapore’s concurrence, and an audited budget.
While HDB’s deficits remain high – growing steadily from S$427 million in FY2011/12, or 6.6 per cent of revenues, to S$2 billion in FY2014/15, or 20.4% of revenues – Moody’s noted that the deficit are “more than fully covered” by the Government.
“Strong financial support also ensures that HDB meets all of its financial and debt obligations. Most of HDB’s activities are unprofitable and the size of its annual and growing losses reflect its social mission of providing affordable public housing,” said Moody’s.
The size of HDB’s deficits are therefore in effect determined each year by the government, based on their decisions of how much and what type of public housing to construct and what level of subsidy to provide to the population.
“Any concerns regarding HDB’s level of indebtedness are offset by the government’s role in HDB’s borrowing strategy, as well as its capacity and willingness to provide liquidity support, if required.”
Due to the close links between Government policy and HDB finances, Moody’s cautioned that any downgrade of the Singapore government’s Aaa rating would result in the downgrade of HDB’s rating. Similarly, any change in the institutional arrangements that would weaken the strong linkages with the government could lead to downward pressure on the rating, it added.
Source : Channel NewsAsia – 15 Oct 2015