Rich Singapore investors stuck as local bond restructuring drags

Singapore's Central Business District on May 22, 2017.
Singapore's Central Business District on May 22, 2017. ST PHOTO: LIM YAOHUI

HONG KONG (BLOOMBERG) - Keith Kueh was expecting Pacific Andes Resources Development Ltd to pay back the company's bonds last year so he could finance his son's college bill and his own retirement. Now it is 18 months after the Singapore-listed fishing company did not honour some obligations and he has not gotten his money yet.

"For investors like myself, we are not portfolio managers who are managing other people's money," said Mr Kueh, a founder at a tech start-up. "This is our hard-earned money."

Singapore is ranked the second most competitive economy globally by the World Economic Forum and is actually faster than most other countries in resolving insolvencies involving assets of all kinds, according to the World Bank. But when it comes to the city's bond market in particular, resolutions have been slower than in some other major markets, according to restructuring advisers.

The speed of such cases is a key focus for investors after the nation suffered an unprecedented S$1.35 billion of local note defaults since November 2015. The government introduced new restructuring laws this year and the Monetary Authority of Singapore has taken steps to spur bond ratings to help investors make informed decisions.

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Debt restructuring is likely to take longer in Singapore than in the United States, Europe or the Asia-Pacific US dollar security market, and the fragmented bondholder base dominated by retail investors often makes the process more difficult, according to PwC Singapore. Local note defaults are also less attractive for distressed funds which could help speed up the procedure, as it is difficult to reach a consensus among bondholders.

"The lack of specialists participating in Singapore defaults means that resolution will often take time and get dragged out," said Mr Peter Greaves, restructuring leader at PwC Singapore, which is advising offshore oil services group Ezra Holdings on its US bankruptcy proceedings.

Authorities have taken steps to increase investor awareness of risks in the market and to make it easier to restructure debt at home.

The MAS will start offering grants to offset costs incurred by issuers seeking credit ratings for Singapore dollar-denominated bonds, according to a central bank statement on June 30. Greater availability of ratings in the domestic bond market would improve market transparency, it said.

New debt restructuring-related amendments in the Companies Act went into force in May.

"Singapore now has a hybrid regime that incorporates the best features of the world's leading jurisdictions, including features that encourage participation by distressed debt investors," the Ministry of Law said in response to questions about bond restructurings. "The ministry will continue to monitor the impact that these reforms have on debt restructurings."

Before those changes, Pacific Andes filed in 2016 in the US for protection against action by creditors. That followed a Singapore court's decision to only offer a moratorium preventing creditors from enforcing claims on assets in the city, but not elsewhere.

"The restructuring of the Pacific Andes Resources Development bonds forms part of a group-wide restructuring plan which is well advanced under Chapter 11 in the US," said Mr Geoff Walsh, a spokesman for the Pacific Andes group. "The court in New York has laid down a time line for the filing of the restructuring plan and the group is fully up to date with the court's time line."

Court-supervised managers for Swiber Holdings this month sought an extension to send creditors a statement of proposals. Ezra Holdings said in July that none of its discussions with lenders and investors have yielded a definitive offer and it needs more time. The company in March filed for bankruptcy protection in the US.

Compared with Singapore, bond restructurings are typically faster in the US and Australia - where debt funds have been active - and in Europe, where such funds "have become the driving force", said Mr Graham Martin, head of restructuring at KPMG in Singapore. KPMG is acting as judicial manager for Swiber.

Singapore has a better record with the speed of resolving insolvencies involving any kind of distressed asset in Singapore, not just bonds. For such cases, the country takes 8/10 of a year on average, compared with one year in the United Kingdom and Australia and 1.5 years in the US, according to World Bank data. The figures look at the number of years from the filing for insolvency in court until the resolution of distressed assets.

In Singapore, borrowers tend to reschedule bond debt to be repaid over a longer time, according to Mr Greaves at PwC Singapore. Falcon Energy Group said earlier this month it intends to seek a three-year extension of the maturity date of its S$50 million notes.

Varde Partners, the US buyout firm and distressed debt investor with US$12 billion of assets under management, has not participated much in Singapore's local bond defaults recently, according to Mr Ilfryn Carstairs, its co-chief investment officer. While Singapore is an accessible jurisdiction for creditors, the notes "haven't been particularly liquid", and some of the defaults have been small, he said.

The local bond market is "arguably too small" and the notes are widely held by private banking clients, which makes it harder for funds to efficiently build a stake, said Mr Gordon Ip, head of fixed income at Hong Kong-based Value Partners Group Ltd.

Singapore dollar bonds are usually sold to accredited investors in lots, or amounts of S$200,000, and are often held by a number of wealthy individual investors rather than a limited group of institutional investors, according to law firm Herbert Smith Freehills LLP.

"Funds will usually want to take a sizable stake, individually or with like-minded funds, to control the direction of restructuring negotiations," said Mr Paul Apathy, a partner at the firm who specialises in restructuring. "This is quite difficult to do when bonds are widely held by retail investors."