Singapore junk bond market lacks depth, say money managers

The Monetary Authority of Singapore is planning to make bond investing easier for individuals as the state seeks to enable alternatives to volatile stock markets.
The Monetary Authority of Singapore is planning to make bond investing easier for individuals as the state seeks to enable alternatives to volatile stock markets. PHOTO: BERITA HARIAN FILE

SINGAPORE (BLOOMBERG) - The probe into China Fishery Group Ltd for a securities offence has wiped out some US$600 million (S$840 million) from group shares and its US currency bonds. The Singapore-dollar notes have barely reacted.

Money managers say the divergence illustrates the lack of depth in Singapore's junk bond market.

The local notes of China Fishery parent Pacific Andes Resources Development Ltd have fallen just 2.2 per cent since the probe was flagged on Aug 21, according to prices from DBS Group Holdings, which led the offering. China Fishery's 2019 US dollar bonds have lost 42.6 per cent, while the group's stock prices have plunged in both Singapore and Hong Kong.

The Monetary Authority of Singapore is planning to make bond investing easier for individuals as the state seeks to enable alternatives to volatile stock markets. Traders and fund managers, however, have raised concerns that investors may struggle to sell bonds when they need to and quoted prices could be misleading, adding to the asset class's risk.

"High-yield bonds in particular are suffering from lack of price discovery,"said Mr Vishal Goenka, head of local currency credit at Deutsche Bank in Singapore. "Dealers are providing little liquidity and it seems that investors are under pressure from possible retail margin calls on their portfolios."

The amount of local bonds with coupons higher than 6 per cent increased to a record $3.5 billion last year in Singapore, where most debt is unrated and such notes are considered high-yield.

Among them are the 2017 bonds of Chinese developer Yanlord Land Group Ltd., which currently offer a yield of 6.9 per cent in Singapore, while its US dollar notes payable in 2018 yield 8.8 per cent, according to Bloomberg-compiled prices.

"This is the nature of the market," said Mr Clifford Lee, head of fixed income at DBS. "In dollar and Dim Sum bond markets, people go in expecting a fair bit of trading but not in Singapore, where the market is still mostly comprised of clients who buy and hold on to the bonds."

Singapore's central bank and the Commercial Affairs Department are probing both China Fishery and Pacific Andes Resources under the Securities and Futures Act, they said in stock exchange filings. The authorities, and Hong Kong's Securities and Futures Commission, are also separately seeking information from Pacific Andes International Holdings Ltd.

China Fishery and Pacific Andes Resources, both listed in Singapore, and Pacific Andes International, have lost a combined US$482 million in share value since then. Bond investors have suffered a US$118 million setback, Bloomberg-compiled data show.

"Secondary market liquidity is, in general, poor in local currency markets," said Mr Neel Gopalakrishnan, an emerging markets fixed income analyst at Credit Suisse's private banking and wealth management unit in Singapore. "The fact that there are fewer market makers, compared to say the US dollar bond market, makes it even more challenging."