SGX Review May Yield New Curbs on Singapore Retail Bond Growth
SGX Review May Yield New Curbs on Singapore Retail Bond Growth
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Singapore’s announcement last week that it may require future retail bond issues to have a minimum level of support from institutional investors would likely curtail future issuance in a market hit by a high-profile default.
Singapore Exchange Regulation, the bourse’s regulatory arm, on Thursday announced that it has set up a working group to review its regulatory framework for retail bonds, including ways to better protect bondholder interests in the event of defaults or restructurings. The review followed the controversy over Singapore-based power and water company Hyflux Ltd., which has defaulted on over S$1 billion ($741 million) of debt, including securities held by mom-and-pop retail investors.
SGX RegCo said its working group will consider the possibility of tightening admission criteria for retail bonds, including by requiring a minimum level of subscription from institutions and a credit rating for the issuer.
Any institutional requirement would likely hinder future growth in Singapore’s retail bond market because of the stringent investment criteria set by institutions, according to Timothy Ang, research analyst at Phillip Securities Research Pte. It would “make it harder for retail bonds to get listed,” Ang said.
More than 30,000 small investors were hit by the Hyflux default, which prompted a rare public protest in Singapore.
Singapore currently has 13 retail bonds and perpetual securities listed on the exchange, up slightly from 11 at the end of 2016, before the Hyflux default, SGX RegCo said. Among the recent issuers was a unit of Singapore’s state-owned investment firm Temasek Holdings Pte, Azalea Asset Management Pte.
Given the added expense normally associated with retail offerings to large numbers of investors, issuers might opt to sell wholesale bonds instead, limiting the investment options for less well-off individuals, Ang said.
Small Lots
Retail bonds are available to mass retail investors in lot sizes as low as S$1,000, a much smaller denomination compared with bonds distributed only to institutional and accredited investors.
Retail investors took up about 5% of local currency issues in 2018, compared with only 0.4% of Singapore debt market issues in other currencies, according to Monetary Authority of Singapore data. Financial institutions and funds accounted for 61% of investment in the Singapore dollar market, compared with 86% for bonds in other currencies, the MAS data showed.
One way to boost retail participation could be by reducing minimum lot sizes in the non-retail part of the market, said Bryan Goh, chief investment officer at the Singapore-based Tsao Family Office, which invests in bonds. Singapore’s non-retail bonds require a minimum investment of S$250,000, higher than for some issues in Europe and the U.S., Goh said.
Still, better participation by institutions would help especially when bond issues turn sour, said Goh. A strong institutional ownership base is helpful when it comes to invoking laws related to insolvency, restructuring and dissolution, he said.
SGX RegCo’s working group, comprising investors as well as representatives from banks and law firms, is also considering other investor protection measures. They include ways to protect bondholder interests in the event of a default or restructuring, and the continuing obligations of issuers. The group will relay its findings to SGX RegCo by mid-year.
To contact the reporter on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Marcus Wright, Denise Wee
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