Singapore becomes a destination for junk bonds

SINGAPORE (IFR) - Companies in Southeast Asia are looking at Singapore as a viable alternative for high-yield bond issues in amounts that would be too small for dollar investors.

The push comes as so-called junk bonds became a predominant theme this year in the Singapore market, with a record number of small-cap and sub-investment grade companies selling debt in the Lion City, attracting investor interest by offering juicy coupons.

Data from Thomson Reuters showed that close to $5 billion of high-yield deals were done to date this year, compared with an estimated $4.4 billion and $3 billion in 2012 and 2011.

Many of these deals were for amounts smaller than US$100m (S$125 million), too small for the dollar market.

This has attracted companies such as unrated Indonesian conglomerate Rajawali Group, which this week started a series of roadshows in the island republic for a potential Reg S deal.

At the same time, Indofood Agri Resources announced its plans to diversify into the Singapore market via a new $500m MTN programme. There were also rumors of Indian and lower-rated Thai companies looking at coming to Singapore with bonds.

The issuers are being attracted by the ability to print bonds at lower coupons than they would get in their home markets, which in some cases do not even have investors that buy high-yield at all.

Meanwhile, in Singapore, last year, investors became renowned for embracing perpetual securities and for chasing yields. And with most of them focused on holding on to the bonds, secondary prices very seldom fall below par.

This has helped Singapore become a consistent source of funds for issuers in the region, being available even at times when the US dollar market was tight.

In 2011, a record US$6.2 billion of local currency bonds were printed in the city-state just as dollar markets froze amid the European crisis and the downgrade of the United States.