United Overseas Bank (UOB) has seen a twofold increase in the number of construction firms securing loans under value chain financing (VCF) in the first six months of the year (1H2020) as compared with the end of 2019. The growth was driven by the increase in sub-contractors and suppliers obtaining loans under VCF as part of tie-ups between their main contractors or project owners and the Bank to help ease the financing challenges brought about by COVID-19. These sub-contractors and suppliers are typically small- and medium-sized enterprises (SMEs)1.
The construction sector has been among the hardest-hit by COVID-19, with companies, particularly smaller firms, facing cash flow pressures. In the third quarter of 2020, Singapore’s construction sector contracted 44.7 per cent year on year2. This pressure was also reflected in a UOB survey3, where cash flow was indicated as the top challenge for one in two (49 per cent) small businesses in the construction sector.
UOB’s VCF supports construction sector firms in obtaining loans by assessing the building project and the various parties that are involved in its construction, including the main contractor and project owner. By connecting the value chain, the Bank creates an ecosystem where it can draw insights from the collaboration and track record of the ecosystem participants for a holistic assessment of each firm’s financing needs and eligibility. This in turn enables UOB to provide these sub-contractors and suppliers, including those that may have previously been ineligible for bank loans, with essential financing support.
Mr Frederick Chin, Head of Group Wholesale Banking and Markets, UOB, said, “Since the start of the COVID-19 pandemic, we have been working closely and proactively with our clients to help them with their financing needs during this difficult period. With the construction sector one of the hardest-hit by the pandemic, we have built on our existing efforts to help companies in this sector access financing in order to overcome the headwinds they continue to face. Through our continued engagement with project owners and main contractors to offer VCF, we have been able to deepen our support for firms in the construction sector, helping them access much-needed cash flow to tide over the crisis.”
Exclusive Design Construction Pte Ltd is a contractor which has successfully obtained loans under UOB’s VCF, in turn enabling the firm to take on a mandate for a significantly larger contract.
Mr Sunny Sng, Managing Director of Exclusive Design Construction, said, “The project was an important milestone and growth opportunity for the company but we were worried about being unable to obtain the financing required for us to deliver on the contract. As such, we were very grateful when UOB went the extra mile to understand the project, our track record and relationship with the project owner, instead of just focusing on our balance sheet. UOB’s unique approach in offering loans under VCF has enabled me to benefit from the Bank’s close relationship with and strong understanding of the project owner, which not only helped in securing the loan but also made the application a hassle-free process.”
With UOB’s ability to support the financing needs of firms in the construction sector, it has also generated growing interest from other main contractors or project owners who are looking to support their contractors and suppliers in easing their cash flow pressures. One such company is Tiong Seng Contractors (Private) Limited, a subsidiary of Singapore Exchange’s Mainboard-listed construction group and property developer, Tiong Seng Holdings Limited.
Mr Pay Sim Tee, CEO of Tiong Seng Holdings Limited, said, “Even as the construction sector takes a gradual and cautious approach to resuming operations, we recognise that the worst is not yet over. As such, we feel the urgent need to contribute back to our value chain and to do our part in maintaining the built environment sector’s resilience. Backed by UOB, an established and reputable partner, we will be able to help our sub-contractors and suppliers access financing. This will not only provide them with immediate financing support but also ensures that the sustenance of our business during this tough period. We are confident that along with our team of sub-contractors and suppliers, we will be able to emerge stronger to capture new business opportunities when the economy recovers eventually.”
1 Source: “Speech by Singapore Contractors Association Limited (SCAL) president, Mr Kenneth Loo at SCAL Built Environment Summit 2018”, SCAL, 22 October 2018. https://www.scal.com.sg/info-details/SCAL-BE-Summit-2018-Speech/
2 Source: “Singapore’s GDP contracted by 7.0 per cent in the third quarter of 2020”, Ministry of Trade and Industry Singapore, 14 October 2020. https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/10/AdvEst_3Q20.pdf?la=en&hash=6FCA7CADD2D88BFF86AA51EBE78F3FB31DBEF904
3 The ASEAN SME Transformation Study 2020 was conducted among 1,000 small businesses with annual turnover of $20 million and below before and during the COVID-19 pandemic, in the third quarter of 2019 and May 2020 respectively. Small businesses across five ASEAN markets – Indonesia, Malaysia, Singapore, Thailand and Vietnam – were surveyed.
