Research: Rating Action: Moody’s affirms Housing and Development Board’s Aaa rating; outlook stable

Singapore, June 28, 2022 — Moody’s Investors Service has affirmed Housing and Development Board ‘s (HDB) Aaa issuer and senior unsecured ratings. The outlook remains stable.

Moody’s has also affirmed HDB’s (P)Aaa senior unsecured MTN programme rating.

RATINGS RATIONALE

The ratings reflect HDB’s strong and close linkage with the Government of Singapore (Aaa stable) and Moody’s view that, if required, liquidity support would be forthcoming from the government.

HDB plays a key policy role in the provision of housing and the related social objectives, and the government maintains close oversight and involvement in its operations.

The close operational and financial ties between HDB and the Government of Singapore suggest that the credit quality of HDB is captured through its relationship with the Singapore government rather than through standalone credit considerations. HDB’s ratings are therefore derived based solely on government support, and without a Baseline Credit Assessment, and as described in Moody’s rating methodology Government-Related Issuers Methodology published in February 2020.

HDB’s function as a policy arm of the Singapore government clearly indicates its integration with the government and therefore supports the strong link between HDB’s credit quality and that of the Singapore sovereign.

HDB is a key statutory board under the Fifth Schedule of the Constitution of the Republic of Singapore and is incorporated under the Housing and Development Act. It operates under the purview of the Ministry of National Development. Under this arrangement, HDB implements the housing and social policies prescribed by the government. It has minimal autonomy with respect to its housing role, urban development, financial operations or borrowing.

HDB’s role as the primary public housing and related social policy arm of the Government of Singapore and the essential services it provides enhance its high strategic importance to the country. The provision of housing is also aimed at 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.

HDB fulfils the provision of housing needs for a large proportion of the country’s population, mostly through the construction of housing estates, the development of new towns, and the provision of mortgage loans. Around 78% of Singapore’s citizens and permanent residents (four million people) are housed in HDB flats, mostly as owners.

The government applies strong oversight over HDB’s activities, indicating that it would be aware of any fiscal pressures well in advance of a crisis.

Control is exercised through the board members and the Chief Executive Officer, who are appointed by the Minister for National Development and are subject to the President of Singapore’s concurrence.

Budgetary operations are largely determined by the government. HDB’s budget must be approved by and audited financial reports submitted to the Minister for National Development and the President of Singapore. The government also approves borrowing by setting limits on the size of HDB’s MTN programme and bank lines.

Strong financial support also ensures that HDB meets all of its financial and debt obligations. Specifically, most of HDB’s activities are unprofitable, and government transfers fully cover the size of its annual losses. The size of HDB’s deficits reflects its social mission of providing affordable housing. As a result, the sale of flats produces revenues that are generally insufficient to cover their costs. These deficits are fully covered by the government and additional amounts are also provided to preserve its capital reserves.

RATIONALE FOR THE STABLE OUTLOOK

The ratings outlook is stable, reflecting the stable outlook of the Singapore sovereign and Moody’s expectations that the institutional framework governing and supporting HDB will remain unchanged.

ESG CONSIDERATIONS

How environmental, social and governance risks inform our credit analysis of Housing and Development Board

Moody’s takes account of the impact of environmental (E), social (S) and governance (G) factors when assessing sub-sovereign issuers’ economic and financial strength. In the case of HDB, the materiality of ESG to the credit profile is as follows :

Environmental risks inform our view on HDB, although these risks are not material for the rating, given its linkages with the Government of Singapore. While the country is exposed to physical climate risks, especially sea level rise over the long-term, the credit impact is limited by the government’s very high capacity to respond to environmental hazards; the institutional, technical and financial resources at its disposal position the government well to adopt and implement climate adaptation strategies.

HDB has demonstrated expertise in sustainable design and construction, and is recognized for environmental best practices and leadership. Its environmental policy includes a commitment to comply with all applicable environmental laws and regulations, as well as the reduction of pollution in policy formulation, planning, development, management and maintenance of public housing and commercial buildings.

In terms of social risk considerations, HDB implements the housing and social policies prescribed by the government, which has been adapting and enhancing housing policies to meet the evolving needs of society and maintain housing accessibility and affordability. Its ability to fulfil these objectives has contributed to our assessment of Low-to-Neutral risks in the area of housing, as well as the overarching view for social risks, for the Government of Singapore.

In terms of governance, the government exercises strong oversight over HDB through the board members and the chief executive officer, who are appointed by the Minister for National Development, subject to the President of Singapore’s concurrence. An approval from the Minister for Finance is required for HDB’s budget, and the financial reports of HDB are presented to Parliament as part of the government’s monitoring process.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

FACTORS THAT COULD LEAD TO AN UPGRADE

HDB’s rating is Aaa, which is already at the top of our rating scale. An upgrade to a higher rating is therefore not possible.

FACTORS THAT COULD LEAD TO A DOWNGRADE

A downgrade of Singapore’s sovereign rating would lead to a downgrade of HDB’s rating. In addition, any change in institutional arrangements that would weaken HDB’s strong links with the government could strain its rating.

In light of the stable outlook on Singapore’s sovereign rating, Moody’s does not anticipate downward rating pressure to emerge on HDB’s Aaa rating in the foreseeable future.

The principal methodology used in these ratings was Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Housing and Development Board (HDB) — a public housing authority — was created by the Singapore government as a statutory board incorporated under the Housing and Development Act on 1 February 1960. It assumed this role from its predecessor, the Singapore Improvement Trust, and remains the sole provider of public housing in Singapore.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are unsolicited.

a.With Rated Entity or Related Third Party Participation: NO

b.With Access to Internal Documents: NO

c.With Access to Management: NO

For additional information, please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Christian de Guzman
Senior Vice President/Manager
Sub-Sovereign Group
Moody’s Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
Singapore, 068895
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Marie Diron
MD – Sovereign Risk
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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Moody’s Investors Service Singapore Pte. Ltd.
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JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077