Credit Update: Oxley – Things might seem better, but still far from over

Brief Introduction

Oxley Holdings Limited (“Oxley”) is a property developer situated in Singapore, with its core businesses in property development, property investment and property management. While it had primarily focused on the Singapore market, it sees successful expansion overseas with presence in five other regions: United Kingdom, Ireland, Cambodia, Malaysia and China. Not restricting itself, the Group explores the development of a variety of assets – quality residential, commercial, industrial and also hospitality projects.

In the quick commentary, we highlighted several points acknowledging Oxley’s relatively high credit risk. Overall, despite paring down their debt with most of their cashflow in FY23, Oxley remains highly leveraged. As such, the direction of this article is primarily towards understanding Oxley’s ability to fulfill repayments on its obligations – particularly OHLSP 6.900% 08Jul2024 Corp (SGD) with a total issuance size of SGD 205m and due to mature in July 2024.

Financial Highlights

Chart 1
Oxley’s financial performance since FY20 (in SGD m)

For the full year ended 30 June 2023 (“FY23”), Oxley continues to see volatile results as with the previous years (Chart 1). Revenue fell significantly in FY23, falling by ~31% from SGD 925.9m in FY22 to SGD 640.4m in FY23. Oxley attributed this to the lower revenue recognized for the development projects in Singapore in FY23 and also the lack of one-off gains observed in FY22 (sale of land parcels in Australia amounting to SGD 97.0m). This was partially offset by higher revenue recognition by projects in Malaysia and its hotel operations.

Profit fell from a net profit of SGD 7.3m in FY22 to a net loss of SGD 97.0m in FY23. Other than the lower revenue as compared to FY22, Oxley highlighted several factors: (1) net loss of SGD 8.5m arising from impairment of properties, (2) non-recurring impairment loss on receivables of SGD 26.0m (due to divestment of non-core assets overseas), and (3) significantly higher finance costs that increased by SGD 32.4m (+28% YoY).

On the other hand, a silver lining for Oxley remains – the cashflow coming from the incremental completion of development projects. As the properties complete in stages, Oxley derives a proportion of the payment depending on the progression. For FY23, Oxley sees significantly higher net cash from operating activities at SGD 665m, largely due to all of its remaining Singapore property development projects obtaining Temporary Occupation Permit (“TOP”) in the same period. The cashflow had provided a much-needed reprieve for Oxley, which had around SGD 885m of borrowings that was initially set to mature in FY23.

For Oxley’s expected cashflow from its development projects, do refer to the segment below where we discuss further about its future progress billings and gross development value left in its projects.

Across the three business segments under Oxley, it appears that Oxley will remain reliant on property development for the time being. In FY23, development properties provided SGD 665.6m cash from the gradual completion of projects, whereas EBITDA of property investment and property management were at SGD 12.2m and SGD 21.2m respectively. Despite the instability of the cashflow coming from the property development, EBITDA of property investment and property management (hotels) remain relatively insignificant in comparison. While further expansion is expected with 3 hotels to be completed (1 Cambodia five-star hotel by 2023, and 2 Kuala Lumpur hotels by 2024), Oxley is unlikely to see material, additional contribution from these two segments in the immediate term.

Oxley’s credit and debt profile

In Oxley’s FY23 Annual Report, it mentioned further loan repayments were made in August 2023, amounting to a total of SGD 280m, which includes SGD 104.5m for the matured OHLSP 7.500% 24Aug2023 Corp (SGD). As such, assuming that the remaining repayments are for loans about to mature soon, the pro forma current borrowings stand at approximately SGD 295m (FY23: SGD 575m), while pro forma total borrowings are estimated around SGD 1,369m (FY23: SGD 1,649m). Almost all of Oxley’s bank borrowings are secured, accounting for ~82% of total borrowings as of FY23.

Without taking into account the further repayments made in August, we noted that Oxley’s FY23 cash position is relatively small (available cash of SGD 101.3m) as compared to the total borrowings. Oxley reflected in its Annual Report that it raised about SGD 56m from the divestment of non-core assets, which had been received as at or after 30 June 2023.  

In FY23, Oxley pared down a large majority of its debt with total borrowings falling from SGD 2,263m in FY22 to SGD 1,649m in FY23. While this reduced its gearing ratio from 1.99x in FY22 to 1.62x in FY23, Oxley continues to look highly leveraged as compared to other high-yield issuers in Singapore. Accounting for the additional loan repayment in August, Oxley indicated that its gearing ratio had fallen to approximately 1.3x.

Oxley’s incoming cashflow will determine its ability to pay off its loans, although Oxley should be able to refinance its debt given the secured borrowings. It appears that Oxley is concerned with its capital management, bearing in mind that it has been striving to pare down debts and improve its credit ratios. With this in mind, we believe that Oxley would utilize its incoming cashflow to pay off its debt where possible – particularly to improve its credit profile and potentially negotiate better terms upon refinancing other debts.

Property development cashflow for Oxley

With most of Oxley’s development projects already launched, we believe that Oxley’s upcoming cashflow will be more reliant on the completion of existing projects, instead of coming from new sales. Below we include a table of the development projects made available to investors, and relevant information with respect to their completion status and value. 

Table 1
Details on Oxley’s development projects and their progress

In Oxley’s FY23 Presentation, it provided an upcoming timeline for its development projects – some to be completed, some to be launched. Based on the expected completion and sale status of the projects, Oxley expects future progress billings of estimated SGD 737m, of which SGD 278m are coming from the Singapore projects.

On one hand, we would like to point out that the future progress billings greatly depend on the progress of the projects, which might be subjected to unexpected delays – a large reason for the delay of various Singapore projects that were expected to attain TOP earlier.

On the other hand, considering the TOP status of all remaining Singapore projects, we expect the future progress billings of SGD 278m from Singapore projects to come in within the first half of 2024. The rationale is that generally, private residential properties in Singapore are expected to attain Certificate of Statutory Completion (“CSC”) (i.e. full completion of the development project) within a year of obtaining the TOP status. Obtaining CSC is quite unlikely to be delayed (in comparison to TOP), as the developer is left with corrective and other minor works post-TOP and before the application of CSC. As such, we believe it is extremely probable for Oxley to receive the remainder of the billings within a year of attaining TOP (first half of 2023 for all Singapore projects).

For Oxley’s Gross Development Value (“GDV”), we understand that there remains relatively significant value from the unsold launched projects. Should Oxley be able to fully sell off its development projects, it can capture GDV of approximately SGD 768m – of which, ~SGD 600m is projected to attain TOP by 2024 and should be able to provide considerable revenue and cashflow to Oxley’s operations.

Of its upcoming projects, Dublin Arch will be Oxley’s key focus, in view of a substantial GDV of approximately SGD 1,260m. Expected to launch in 1Q24 and to attain TOP by 2025, Oxley’s near-term performance will be highly dependent on the performance of this particular development project.

Oxley’s issuance and comparison with other high yield issuers

Among Oxley’s fixed rate notes, only the OHLSP 6.900% 08Jul2024 Corp (SGD) remains. It has an outstanding principal amount of SGD 195m. At the ask price of 96.50, it offers a yield to maturity (“YTM”) of 12.62% with approximately 0.67 years left to maturity. While the YTM is one of the highest offered by a fixed rate issuance in the SGD market, Oxley is notably much riskier even among the high-yield issuers (Chart 2). Compared to Tuan Sing, Heeton Holdings and Koh Brothers, Oxley stands out with its high net gearing and net-debt-to-EBITDA ratios – despite paring down a large amount of debt in FY23.

Chart 2
Oxley’s credit metrics compared to other high-yield issuers

For existing bondholders of the issuance, we continue to hold the belief that existing bondholders need not be too worried about Oxley’s default risk on this issuance. While credit risk is definitely on the high side for Oxley, we have reasons to believe that default is unlikely for this issuance. This is because (1) future progress billings strongly suggest that Oxley will have considerable cashflow in the immediate period (furthermore, there remains quite significant GDV from unsold development projects that can provide additional cashflow over the medium-term) and (2) Oxley remains capable of refinancing or tapping into additional secured borrowings to avoid a default.

While Oxley appears unlikely to default in the short-term, its longer-term outlook remains weak for the time being. With the lack of new launches other than Dublin Arch, Oxley’s revenue is likely to continue looking relatively lacklustre. In addition, Oxley continues to be battered by higher finance costs – on top of a constant need to exercise caution on its capital management, to further contain its credit and default risk.

Given the uncertainty in economic growth across the globe, we prefer quality issuers that are less expected to see significant deterioration in their credit profile should there be a slowdown in growth. As we continue to expect interest rates to remain higher-for-longer, high-yield issuers are likely more impacted by the persistently high interest rates. Among the picks for SGD fixed rate issuances, we recommend ESRCAY 5.100% 26Feb2025 Corp (SGD) – with YTM of 5.26% at the ask price of 99.80, with 1.30 years left to maturity.

Even among the high yield issuers, we believe investors may consider other issuances that adequately compensates investors without taking excessively high credit risk (for example, HTONSP 7.000% 03Nov2026 Corp (SGD) at the ask price of 103.79, with a yield to maturity of 5.60% and 2.98 years left to maturity).

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in OHLSP 6.900% 08Jul2024 Corp (SGD) and ESRCAY 5.100% 26Feb2025 Corp (SGD), and the analyst who produced this report holds a NIL position in the abovementioned securities.