CovidJune 29, 2020by Business Valuation TeamValuation And Access To Financing Post COVID19

For the past months, Singapore and the world has suffered under the grasp of COVID19, a disease that has threatened the livelihood of humans and businesses globally. Characteristics of the COVID19 have been summarised by lockdown, sanitizing and social distancing.

However, practices such as lockdowns and social distancing have not been kind to businesses including financial service providers. Lenders are at risk of higher rates of default on loans with businesses almost grounded to a halt.

Notwithstanding the nature of a business, its valuation or the economic value of a business has changed significantly prior to COVID. Generally across all major industries, overall valuation is seen as declining especially for those that have been shut down due to strict guidelines from the health ministry and the absence of ready paying consumers.

Business Valuation

Valuation for businesses has had a paradigm shift since COVID. Businesses that have remained actively selling during the pandemic have created more value for themselves than those that are not able to maintain usual operations due to restrictions or challenges. For instance, companies offering healthcare services and products have benefited from this turn of events.

Technology companies providing virtual office abilities such as Zoom have registered significant growth in value whilst hotels have had the lowest numbers walking in leading to reduced incomes. Airlines have ground to a halt with passenger numbers reducing while online retailing services, workspace solutions, hand sanitizing products, liquor stores and entertainment have been reported by Forbes to have registered growth.

Thousands of employees have been affected losing their jobs with some companies forcing those that remain in the workforce to take pay cuts. The banking sector has not been spared either. Restructuring the loan books has become a norm with banks seeking funding to cover the gap created by the rates of default suffered and declining performance of loan portfolios according to the IMF.

Recovery and Financing

Post-COVID, companies in Singapore are poised to struggle in raising financing for recovery. Pessimism has taken over from the enthusiasm of investors to acquisition of loans. Majority, especially those that suffered significant declines in their wealth and values due to the initial uncertainties of COVID have become risk averse and are evaluating their investment decisions carefully.

The banking sector has been highlighted as an area that also suffered from the uncertainties with higher possibilities of customers defaulting on their loans. Also, the banking sector has been forced to restructure existing loans affecting their ability to offer further credit.

Risk measure has become an essential component of lending with institutions becoming selective of those to advance loan facilities. Furthermore, banks like DBS and UOB have appreciated the value of keeping lower levels of risk by reducing the lending levels compared to the period before COVID. The prevalence of COVID has therefore, affected both access to equity and debt financing.

Evidently, the effects of COVID19 have been felt in business operations. This has resulted in decline in willingness of investors to offer financing and banks to offer loans. The effect of this is declining valuation for businesses that have not been labelled to offer essential services during the COVID period.

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