Bond holders facing defaults band together to assert rights

SINGAPORE • When troubled Malaysian oil and gas services provider Perisai Petroleum Teknologi asked bond holders for more time to pay them back, one investor from Singapore said she thought the bonds' coupons had something to do with free parking.

Roughly two months later, her self-declared ignorance is giving way to an activist spirit. The investor and other affluent Singaporeans holding Perisai bonds have realised they can form a blocking stake that could force the company into offering better terms or risk liquidation.

"Coming together will put pressure on Perisai," said the investor, who declined to be identified other than by her first name, Jennifer.

She had invested about $260,000 of a fortune she had made in real estate into Perisai bonds, which are now quoted at 50 cents on the dollar, but barely traded.

The investors last month rejected the company's request for a four-month extension of its $125 million, 6.875 per cent, Oct 3 bond on which Perisai defaulted.

The process is unique to Singapore's $200 billion bond market, in which individual investors have bought about half of new issues since 2014.

By contrast, European and United States bond markets are dominated by big institutions, such as pension funds, while individuals own an insignificant percentage.

"Investors have become cognisant that the defaults are not isolated cases, there could be more of them, and if they do not assert their rights, their ultimate recovery in a restructuring could turn out to be far worse," said Bank of Singapore's head of fixed income research Todd Schubert.

Increasingly aware that they have more power if they band together, individual Singaporean investors are flexing their muscles in the troubled offshore oil and gas sector in particular. It is widely expected to be the scene of further defaults.

Small and medium-sized companies tapped these investors for financing after commodity prices hit a peak in 2014, offering illiquid, high-yielding bonds with no credit rating at a time when commodity prices were starting to sink.

Bond investors in shipping trust Rickmers Maritime and rig chartering service provider Swissco Holdings are also teaming up, making it more difficult for the indebted companies to pursue restructuring plans.

Still, these investors face an uphill task. Finding each other and negotiating a common position is difficult enough, but overcoming the financial illiteracy of some bond holders is also a big challenge.

"Many of the bond holders are ignorant. They don't even know that they need to vote," said Mr C.T. Ong, a steel trading businessman who has spent about $250,000 on Rickmers bonds.

Early efforts are encouraging. In Jennifer's case, two fellow bond holders helped translate some of the discussions into Chinese, which she is more comfortable with than English.

Another one invited her to a WhatsApp group of about 70 Perisai bond holders. "So many things, I only learnt from the group chat," said Jennifer.

At least 30 Swissco bond holders meet nearly every week. At one meeting on Nov 5, one investor peppered his calls for "unity" with bitter jokes about selling the bonds to company directors.

The Monetary Authority of Singapore plans tighter criteria for accredited investors, including disqualifying those whose wealth is concentrated in their home, and who have few liquid assets otherwise.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 16, 2016, with the headline 'Bond holders facing defaults band together to assert rights'. Print Edition | Subscribe