Corporate bond offerings by some of Singapore's biggest companies are drawing such strong demand from investors that they are artificially lowering borrowing costs for weaker borrowers, according to S&P Global Ratings.
Recent offerings from issuers such as investment company Temasek, port operator PSA Corp and electricity distributor Singapore Power were "well oversubscribed" amid heightened threat of non-payments by riskier borrowers across South-east Asia, analysts Bertrand Jabouley and Xavier Jean wrote. Banks have also been supporting some companies in the troubled oil services industry, easing default pressure, they said.
Singapore's bond market had its first defaults since 2009 when Trikomsel Oke missed payments on two bonds with $215 million of face value late last year. Fishery group Pacific Andes Resources Development reneged on a $200 million note in January, while recent debt failures across the region have included Berau Coal Energy and 1Malaysia Development Bhd.
"In an environment of perceived rising risks, flight to quality has been a bit irrational," the analysts wrote. "Issuance of highly creditworthy corporates and the frenzy they trigger do not revive the market but simply artificially adjust the cost of credit to the downside, as everyone raising bonds benchmarks their cost of funding against them."
The phenomenon is not unique to Singapore's debt market. S&P's study shows there is "limited differentiation" across capital structures among 150 prominent listed entities in South-east Asia.
Their median cost of funding has fluctuated in a band of 100 basis points, or 1 percentage point, regardless of their balance sheet quality or leverage levels, the analysts said. "It is not much more onerous to finance a levered balance sheet," Mr Jabouley and Mr Jean wrote. "Credit risk has looked ill-priced in Asean."
PSA sold US$500 million (S$678 billion) of 10-year bonds in April, attracting about US$1 billion of orders, according to Bloomberg-compiled data, while Temasek's offerings of euro-denominated notes in February also drew large bids.
Singapore Power got orders double the size of its US$700 million sale of 10-year notes in November.
"As more defaults happen in the domestic bond markets... the market will gradually differentiate credit risk better by raising the funding costs for the more leveraged corporates," the S&P analysts wrote.
There are about $1 billion worth of bonds issued by energy, oil and gas and shipping companies - including from Swiber, Otto Marine and Rickmers Trust Management - due for maturity over the next 12 months, according to iFast Corp. Some restructuring may be on the cards, it said.
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