Singapore retail investors cool on bonds as economy slows

SINGAPORE (BLOOMBERG) - Singapore's retail investors are losing their fervor for bonds as the economy cools, after the amount of notes sold to individual investors was twice initial public stock offerings in 2015.

Prices on the exchange-traded notes are beginning to converge with those sold to institutions on the interbank market. Four companies raised S$975 million selling bonds to individuals last year, outstripping the S$496 million of IPOs, filings show. The one bond sale this year to such investors met with lower demand.

Appetite has been dampened by two defaults on bond payments in the past six months and concerns Singapore's economic slowdown is deepening. Home prices in the city-state have declined in the past 10 straight quarters, while energy and marine-engineering companies are enduring the pain from a two- year slide in crude oil.

"Prices and yields have converged for some bonds," said Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast Corp. "Arbitraging the two markets may appear to be a logical step but we believe this is still limited by the thin exchange-traded volumes."

Six of eight bonds sold by the likes of developers CapitaLand Mall Trust, Frasers Centrepoint and Oxley Holdings are trading at weaker prices on the Singapore Exchange than levels quoted by interbank traders, according to iFast. Property and jewelry company Aspial Corp's second retail bond issue this week fetched a lower price premium than its debut sale in August.

Frasers Centrepoint's May 2022 bonds sold to individual investors are trading at almost the same price as its June 2022 wholesale bonds, narrowing from a 1.1-cent advantage at the start of the year, based on prices from DBS Bank. Yields on both securities have converged at about 3.9 per cent, erasing a 46 basis point spread since last May.

Individual investors buyers took up S$175 million of Aspial's 2020 notes at its public offering last month, according to a company filing. The offer was oversubscribed by five times, versus 8.7 times at its first sale in August. The notes pay 5.3 per cent coupon, about four times the interest rate on one-year time deposits.

SGX, which operates the bourse for trading of bonds bought by retail purchasers, said it's committed to improving investors' understanding of how to evaluate risks and returns.

"We have in place a number of investor education programs such as regular bond seminars," Chew Sutat, head of equities and fixed income, said in an e-mail. "SGX's fixed income indices will also help retail investors to make informed investment decisions with relevant metrics and benchmarks."

The market is doing a fine job of pricing risk, according to Clifford Lee, head of fixed income at DBS Group Holdings, which has a more than 80 per cent share in arranging bond sales to individuals. One example: notes issued by better- capitalized companies have attracted larger demand than those for smaller companies dangling higher yields, he said.

"The market is more discerning than we give it credit for," said Mr Lee. "The subscription rates show that retail investors have exercised some level of discretion in their decisions. The investment risk is the same as if they buy equity or real-estate investment trusts."

The rush into such bonds is slowing after defaults by phone retailer PT Trikomsel Oke and fishery group Pacific Andes Resources Development Ltd. There has also been a rebound in equities with the Straits Times Index gaining 6.5 per cent last month.

The equities' market tends to be more transparent and better understood, said Feng Zhi Wei, a credit analyst in Singapore at Standard Chartered.

"On the bond side, there isn't as much coverage as on the equity side from banks and brokerages," said Mr Feng. "Retail investors may just be attracted by the relatively high yield without fully understanding the risks" such as industry dynamics, individual credit profiles, the interest-rate environment and trading liquidity.