SGX's regulatory arm to review retail bond framework

SGX RegCo has set up a working group of industry professionals and investors to review the regulatory framework.
SGX RegCo has set up a working group of industry professionals and investors to review the regulatory framework.PHOTO: ST FILE

Working group will look into rules like admission criteria for issuers in wake of Hyflux default

The regulatory arm of the Singapore Exchange (SGX) will look into the rules around retail bonds, including possibly tightening the admission criteria for issuers.

SGX RegCo has set up a working group of industry professionals and investors to review the regulatory framework, it said yesterday.

The move follows the high-profile default by water treatment company Hyflux last year and comes hard on the heels of SGX RegCo devising a road map to tighten its oversight of the market.

It also made key changes to delisting rules to protect independent and minority shareholders.

Mr Michael Tang, SGX RegCo's head of listing policy and product admission, said: "We are reviewing the retail bonds framework following recent developments and feedback from the market.

"The possibility of tightening the admission criteria, including requiring a minimum level of subscription by institutional investors and a credit rating, are among matters to be discussed."

The working group will also assess the admission criteria for retail bond listings, the continuing obligations of issuers and ways to protect bondholders in the event of a default or restructuring.

Mr Tang added: "The working group will provide views on how individual investors can be better served when bonds they hold are in distress. We want to hear suggestions on how to fund trustees acting for bondholders and ways to help bondholders organise themselves."

The group is expected to present its recommendations by the middle of the year, with a public consultation likely by the end of the year.

PRE-EMPTIVE EFFORT

While Hyflux may be the trigger point, we have to view the framework development holistically. The review will be a pre-emptive effort to strengthen Singapore as a financial hub for all investors, including the retail buyers.

ASSOCIATE PROFESSOR LAWRENCE LOH, from the National University of Singapore Business School.

The working group comprises representatives from financial services firm Perpetual (Asia), law firms Allen & Gledhill, Allen & Overy and Clifford Chance, banks such as DBS Bank, OCBC Bank and United Overseas Bank, and the Securities Investors Association (Singapore) or Sias.

Associate Professor Lawrence Loh from the National University of Singapore Business School said: "The review is needed as bond instruments are becoming more sophisticated - at the same time, it is good to have more choices to cater for the needs of retail investors.

"While Hyflux may be the trigger point, we have to view the framework development holistically. The review will be a pre-emptive effort to strengthen Singapore as a financial hub for all investors, including the retail buyers."

He added that some kind of insurance protection for small retail investors can also be helpful, such as deposit insurance schemes, in the event of default or restructuring.

Sias president David Gerald pointed to cases where retail bond investors who had already lost money in the oil and gas debacles could not afford to engage legal and financial advisers.

"In one or two cases, Sias was successful in persuading the issuer and the distributing bank to provide the funding, though limited," he added.

"Most of the other companies in that situation were not willing to fund, either because they could not afford (to) or did not agree on principle. So Sias (thinks there could be) either insurance for such a situation or the setting up of a fund contributed by all issuers of bonds."

Smartkarma insight provider Nicolas Van Broekhoven said investor education is crucial and that warnings in plain language should be put out on the offering document: "People need to understand the risks they are taking as with any financial decision in their life."

OCBC credit research analyst Andrew Wong said the Hyflux default has increased awareness of the need for fundamental credit analysis of the bond issuer, as well as an understanding of the information necessary to assess the investment.

He added that there has been growing interest in bonds and that retail investors must also do their homework on matters such as the foundation of the issuer, the bond structure and fundamentals like the interest rate offered.

A version of this article appeared in the print edition of The Straits Times on January 03, 2020, with the headline 'SGX's regulatory arm to review retail bond framework'. Print Edition | Subscribe