Lessons to be learnt from junk bond defaults, more can be done to help fragmented investors: MAS

The spate of high-yield bond defaults to hit accredited investors here are a reminder that investments carry risks and no investment is ever fail-safe, the Monetary Authority of Singapore (MAS) said on Tuesday (Nov 22). PHOTO: ST FILE
The spate of high-yield bond defaults to hit accredited investors here are a reminder that investments carry risks and no investment is ever fail-safe, the Monetary Authority of Singapore (MAS) said on Tuesday (Nov 22). PHOTO: ST FILE PHOTO: ST FILE

SINGAPORE - The spate of high-yield bond defaults to hit accredited investors here are a reminder that investments carry risks and no investment is ever fail-safe, the Monetary Authority of Singapore (MAS) said on Tuesday (Nov 22).

The regulator was responding to media queries on whether more could be done to prevent misselling of risky products to investors here.

The MAS said: "Our regulations cannot prevent or reduce the risk of defaults of corporate bonds. It is not possible to achieve this. Bond defaults can happen.

"It is neither practical nor desirable for MAS to prescribe the suitability of each class of products for only particular types on investors... Investors have to take personal responsibility for their decisions. In the case of bond investments, they need to look beyond the headline yield offered."

Nevertheless, the MAS has heard from affected bond holders and identified certain areas where more could be done.

For example, a unique aspect of the Singapore junk bond market is that individual investors take up a large portion of the issuance pie. This makes it harder for the fragmented bond holders to band together to assert their rights.

The MAS said: "We think this is an area where more could be done - for instance, in terms of enabling bond holders to reach out to other bond holders more efficiently and giving greater clarity to bond holders upfront (eg. at the point of purchase) on their rights in a default situation. We are carefully studying the matter, and will also engage the relevant industry players."

Securities Investors' Association (Singapore), the investors' lobby group also known as Sias, has recently stepped in at the MAS' behest to play an aggregator role and facilitate dialogue between bond holders and Rickmers Maritime, which missed a S$4.26 million interest payment to bond holders on Nov 16.

Sias chief executive officer David Gerald said that note holders are welcome to talk to Sias and use it as a platform for discussion, since the organisation has access to pro bono lawyers and financial advisers.

Of late, the Singdollar bond market has suffered five defaults representing S$1.1 billion or 0.74 per cent of all bonds outstanding.

There had been no bond default in Singapore since 2009 until the dominos started falling last November, when telecom firm Trikomsel missed payments. Fishing group Pacific Andes Resources Development followed in January. Trouble soon spread to the highly-leveraged oil and gas sector, with Swiber collapsing in July. Perisai Petroleum Teknologi defaulted in October. Swissco filed for judicial management on Monday.

A sixth issuer, Rickmers Maritime, is in technical default after missing its last coupon payment, but is trying to convince note holders to approve a debt restructuring plan.