The Monetary Authority of Singapore (MAS) has unveiled a grant to encourage companies to issue credit-rated Singapore dollar bonds.
Its aim is to increase the share of rated bond issuances and improve market transparency, said MAS yesterday. The SGD Credit Rating Grant will help issuers offset the associated costs over a five-year period and encourage more issuers to obtain credit ratings. It is open to both foreign and domestic issuers.
Qualifying issuers of Singdollar bonds who obtain credit ratings from an international rating agency can claim up to 100 per cent of their credit-rating expenses, subject to a funding cap of $400,000 per issuer.
Credit ratings provide timely and independent assessments of the creditworthiness of issuers throughout the life of a bond, the MAS added. "MAS strongly encourages all issuers in the SGD bond market to rate their bonds. This will help provide greater transparency to investors, broaden the pool of market participants, and grow the Singapore dollar bond market," said Ms Jacqueline Loh, MAS deputy managing director.
"We also urge investors to carry out proper due diligence and understand the credit ratings and other indicators of financial strength of an issuer before investing," she added.
Only about half the outstanding volume of Singapore dollar bonds are rated, the MAS noted. Besides informing investors, credit ratings can also benefit bond issuers, it said. Many regular issuers in the Singdollar bond market are currently unrated and rely mainly on the same pool of domestic investors.
Credit ratings would allow these issuers to attract a broader and more diverse investor base, including international institutional investors, the MAS said.
DBS Bank head of fixed income Clifford Lee said the move is a "bold step... to encourage better disclosure standards, more transparency and increased sophistication in the Singapore dollar bond market". "This can only be beneficial to issuers and investors, and lend confidence to the continual and positive development of the Singapore dollar bond market going forward," he added.
OCBC Bank credit analyst Nick Wong said credit ratings allow investors to compare different issuers more easily, while also serving "as a gentle reminder to potential investors that higher coupon rates usually goes hand-in-hand with higher levels of credit risk".