Singapore mom-and-pop investors face losses as bond risks spread to retail market

Singapore millionaires stung by the misery of recent bond defaults now have company as the fallout threatens losses for mom-and-pop investors.
Singapore millionaires stung by the misery of recent bond defaults now have company as the fallout threatens losses for mom-and-pop investors. PHOTO: ST FILE

HONG KONG (BLOOMBERG) - Singapore millionaires stung by the misery of recent bond defaults now have company as the fallout threatens losses for mom-and-pop investors.

All four new issues of Singapore dollar-denominated notes targeted at individuals this year have dropped below the par sales value, as failures in the broader market stoke speculation nonpayments will spread. UBS Group's wealth management unit said in an Aug 16 report that retail investors are being sold "weak" names, and Lombard Odier said they face default risks on securities with poorer credit profiles.

"Now with bonds of small-medium-enterprises with weaker credit profiles being sold to retail investors, this exposes mom-and-pop investors to the risks of a default and bond restructuring," said Dhiraj Bajaj, senior vice president in Singapore at Lombard Odier.

The last time Singapore's individual investors suffered default was in 2008, when Lehman Brothers Holdings' collapse resulted in failure to pay structured notes called mini-bonds, according to Bloomberg-compiled data. Signs of stress are rising as the economy cools. Swiber Holdings Ltd failed to pay a coupon earlier this month, Pacific Andes Resources Development Ltd reneged on securities in January and PT Trikomsel Oke missed payments late last year. While none of those incidents involved mom-and-pop investors, they have raised alarms.

Singapore's regulator is tightening safeguards in the bond market as it encourages broader participation. The focus of the Monetary Authority of Singapore's "regulatory regime for investor protection, particularly for offers made to retail investors, is two-fold," it said in an e-mailed response to questions.

"First, we require issuers to make timely and relevant disclosures so that investors can make informed decisions. Second, we require financial intermediaries that distribute investment products to deal with their customers fairly." Information disclosure requirements in Singapore are rigorous, and "issuers who offer bonds to retail investors are required to disclose key financial information about the features of the bonds and risks relating to the issuer as well as the bonds," MAS said.

"In the case of bonds, investors need to look beyond the headline yield offered and carefully consider the financial performance and strength of the issuer or the credit risk it poses, the risk of interest rate changes that affect the price of a bond and the liquidity of the bond."

In 2014, the central bank said in response to feedback on a consultation paper that it would proceed with steps to make it easier for companies to offer bonds to individual investors while maintaining sufficient safeguards.

The four retail securities sold this year are listed on the Singapore Exchange. They were marketed through offering statements containing prescribed information, and the issuers must announce results and explain significant factors that affect them, according to the bourse.

"Under Singapore's disclosure-based regime, they are also obliged to make continuous disclosures of any other material information," the exchange said in an e-mailed reply to questions. It published a column in June outlining things retail investors should be aware of when buying bonds.

The local-currency retail note market is expanding just as analysts forecast Singapore's economy will grow at the slowest pace in seven years in 2016 at 1.8 per cent growth.

"I think there is a growing risk of defaults happening with a slowing economy," said Vishal Goenka, Singapore-based head of credit sales for Asia at Deutsche Bank.

Rather than using impartial analysis, investors have bought a lot of notes based on familiarity with the issuer's name or just because they are from Singapore, according to Bajaj at Lombard Odier, which has been avoiding Singapore dollar bonds.

The 5.3 per cent securities of Aspial Corp, a jewelry retailer and developer of high-rise condos, have dropped to 97 cents from about 100 cents at the end of July, according to exchange prices.

A spokeswoman for Aspial declined to comment.

The 6 per cent perpetual bonds sold to mom-and-pop investors by water company Hyflux Ltd. have declined to 95.4 cents from about 100 cents as recently as Aug 12, exchange prices show.

Hyflux's group chief financial officer Lim Suat Wah said the company has a cash balance of S$494 million as at end June 2016 and also recently completed project finance for two major projects. "There is sufficient cash as well as available lines such that the company does not need to raise additional funds to redeem any maturing facilities," she said.

Rising risks in Singapore's bond market were highlighted in the missed payment by Swiber, which operates construction vessels to support the offshore oil and gas industry.

Its default places attention on high-yield securities amid mounting regulatory scrutiny, according to Magdalene Teo, fixed income analyst at Julius Baer.

"While the current low interest rate environment offers some reprieve to companies in terms of lower funding costs, those companies with higher leverage may find it challenging to refinance their upcoming maturities as local banks assess their exposure," said Ms Teo.