Retail investors lamenting the dearth of fixed-income instruments will soon have one more option to consider - wholesale bonds issued by corporates and listed on the Singapore Exchange (SGX).
Two frameworks, launched by the SGX and the Monetary Authority of Singapore, will allow corporates the option of opening up their bond issues to retail investors.
There are about 1,900 such bonds listed on the SGX today, but they are available only in large denominations of at least $200,000, and most are offered only to institutions or accredited investors.
Accredited investors are individuals whose net personal assets exceed $2 million or whose income in the preceding 12 months is not less than $300,000, and corporations with net assets of over $10 million.
But under the SGX's new Bond Seasoning framework, such bonds can be made available to retail investors and for outlays of as little as $1,000.
Under the framework, these bonds will still be offered only to institutional and accredited investors at first. But the companies issuing the bonds can, after a "seasoning" period of six months, launch a tranche just for retail investors too.
Issuers too will gain from a bigger pool of investors. This initiative advances SGX's efforts to build a dynamic and thriving fixed income market in Singapore.
MR LOH BOON CHYE, SGX chief executive, on the growing interest among retail investors for fixed-income investments.
To do so, the companies will have to seek approval from the SGX under the framework. They will have to meet some minimum criteria relating to their size, track record and listing history. For example, having a market capitalisation of at least $1 billion over the past 180 market days would count in their favour. Having listed, or guaranteed the issuance of bonds listed on the SGX for at least five years, would too.
Eligible issuers will also be able to make subsequent direct offers of bonds, called a "re-tap", to retail investors under the same terms as the existing wholesale bonds, without a prospectus, following the six-month seasoning period.
The framework took effect yesterday and will be applicable to new bond issues from today onwards.
SGX chief executive Loh Boon Chye said the move comes as retail investors are greatly interested in fixed-income investments.
"Issuers too will gain from a bigger pool of investors. This initiative advances SGX's efforts to build a dynamic and thriving fixed-income market in Singapore," he added.
Meanwhile, the MAS launched the Exempt Bond Issuer framework.
Issuers that satisfy thresholds relating to their track record, that are higher than the eligibility criteria under the seasoning framework, can offer bonds directly to retail investors at the onset without a prospectus. These bonds can also be bought and sold on the SGX.
Issuers under both frameworks must meet the requirements under regulations introduced yesterday by the MAS.
DBS Bank's head of fixed income, Mr Clifford Lee, said with the documentation process now less onerous, it will certainly be easier for corporate bond issuers to reach out to retail investors.
"We expect to have more discussions with corporate issuers on retail offerings, especially since the retail market has been of interest to them, given the recent spate of successful retail issues."
UOB's head of group investment banking, Mr Ronny Chng, added that these measures to increase retail investors' participation would add to the appeal and increase the vibrancy of Singapore's bond market.
However, Mr M. Salim, the chief executive of Avallis Financial, noted that while bonds are often touted as a safe investment, retail investors should not rush into these wholesale bonds without studying the risks first.
"The last thing they should assume is that their principal investment into a bond is 100 per cent guaranteed upon the bond's maturity. Bonds are subject to solvency risk - the company could become insolvent. The company might also delay or default on coupon payments if they face financial difficulties," he noted.
One potential issuer that retail investors will likely look out for is Temasek Holdings, which has said previously that it was looking at offering retail bonds.
In a statement yesterday the investment firm said it welcomes the release of the retail bond frameworks by the MAS and SGX.
"Temasek remains open to a retail bond issue in due course. We will study the details of the frameworks released today," it added.