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Brexit & Pound (Business Time)

Jul 26, 2019

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Mixed impact seen for pound rout on Singapore firms

JUL 25, 2019 05:50 AM


THE British pound, which has fallen since the Brexit vote, took another beating with the changeover at No 10 Downing Street – but its impact on Singapore firms with UK exposure is likely to be mixed.

Following former foreign secretary Boris Johnson’s win to replace Theresa May as British prime minister, the sterling slid to a low of 1.6938 SGD on Tuesday. Late on Wednesday, it recovered slightly to 1.7028 against the SGD.

One major contributing factor was Mr Johnson’s pledge to take the UK out of the European Union (EU) on Oct 31 with or without a deal, sparking growing unease among investors.

Singapore companies with investments in the UK could incur currency translation losses – with revenue in pounds reported in SGD – but analysts told The Business Times not all will feel the effect equally, with some even looking into acquisition opportunities thrown up by a weaker currency there.

Property players such as City Developments Ltd and Hwa Hong Corp, which own commercial buildings in the UK, are unlikely to see significant losses due to their small exposure in the UK, said Terence Wong, CEO of Azure Capital. CGS-CIMB analyst Lim Siew Khee shares the sentiment. She added: “Right now, translation will see minimum impact, unless the pound continues to fall to a certain level.”

Singapore investors in UK student accommodation, such as sovereign wealth fund GIC, Mapletree Investments and Singapore Press Holdings, are also likely to enjoy growing demand from both domestic and international students that could offset any forex translation loss.

Between 2020 to 2030, Britain’s population of 18-year-olds is poised to grow by an average rate of 2 per cent annually.

According to UOB Kay Hian, UK universities have seen an increase in Chinese undergraduates, with enrolment rising by up to 9 per cent in 2017/2018.

Meanwhile, real estate investment trusts (Reits) can seek entry opportunities in the UK amid a weakened currency. It is “only sensible” for Reits to invest in the UK now if the yield does not fall, said Gabriel Yap, executive chairman of GCP Global.

“Reits like Ascendas might see (the (value of) their assets marked down slightly, but earnings-wise, the impact is miniscule. I believe they will continue to look to the UK for more opportunities.”

As at Q4 2018, Ascendas Reit owns 38 logistics properties in the UK which make up 8 per cent of its total portfolio asset value.

According to Cushman and Wakefield, prime yields for logistics assets in UK were around 5.2 per cent as at Q2 2018.

Mr Yap said he is “not too overly pessimistic” about the British market so long as the pound’s slide is not too drastic. “There will definitely be more negative impact if the pound continues to fall, but right now, there are still many opportunities in the UK; many reasons for companies to take advantage of the weakening pound.”

DBS Bank is pointing to a grim outlook for the pound, thanks to heightened anxiety over a no-deal Brexit and global slowdown risks from US-led trade protectionism. With no signs of an orderly exit from the EU, DBS has forecast the pound to fall to 1.60 against the SGD by end 2019 and to 1.58 by end 2020.

“A hard Brexit could tip the UK economy into recession and lead the Bank of England to cut rates,” said DBS foreign exchange strategist Philip Wee.

Rating agencies are also likely to downgrade UK’s debt rating and review the pound’s status as a global reserve currency in the event of a no-deal divorce. “The battles and uncertainties between now and Oct 31 are likely to flatline business and consumer confidence,” said Mr Wee.