S'pore retail investors face losses as bond risks rise

All four new issues of S$ notes targeted at mom-and-pop investors have fallen in value

HONG KONG • Singapore millionaires stung by the misery of recent bond defaults now have company as the fallout threatens losses for mom-and-pop investors.

All four new issues of Singapore dollar notes targeted at individuals this year have dropped below the par sales value, as failures in the broader market stoke speculation that non-payments will spread.

"Now with bonds of small and medium enterprises with weaker credit profiles being sold to retail investors, this exposes mom-and- pop investors to the risks of a default and bond restructuring," said Lombard Odier's senior vice-president in Singapore, Mr Dhiraj Bajaj.

Swiber Holdings failed to pay a coupon last month, Pacific Andes Resources Development reneged on securities in January and PT Trikomsel Oke missed payments late last year. While none of those incidents involved mom-and-pop investors, they have raised alarms.

Singapore's regulator is tightening safeguards in the bond market as it encourages broader participation. The focus of the Monetary Authority of Singapore's "regulatory regime for investor protection, particularly for offers made to retail investors, is twofold", it said in an e-mailed response to questions.

"First, we require issuers to make timely and relevant disclosures so that investors can make informed decisions. Second, we require financial intermediaries that distribute investment products to deal with their customers fairly," the authority said.

"Information disclosure requirements in Singapore are rigorous, and issuers who offer bonds to retail investors are required to disclose key financial information about the features of the bonds and risks relating to the issuer as well as the bonds," it added.

In 2014, the central bank said in response to feedback on a consultation paper that it would proceed with steps to make it easier for companies to offer bonds to individual investors while maintaining sufficient safeguards.

The four retail securities sold this year are listed on the Singapore Exchange.

"Under Singapore's disclosure- based regime, they are also obliged to make continuous disclosures of any other material information," the exchange said.

The local-currency retail note market is expanding just as analysts forecast Singapore's economy will grow at the slowest pace in seven years in 2016 at 1.8 per cent growth.

"I think there is a growing risk of defaults happening with a slowing economy," said Mr Vishal Goenka, Singapore-based head of credit sales for Asia at Deutsche Bank.

The 5.3 per cent securities of Aspial Corp, a jewellery retailer and developer of high-rise condos, have fallen to 97 cents from about 100 cents at end-July, exchange prices show. Also, the 6 per cent perpetual bonds sold to retail investors by water firm Hyflux have slipped to 95.4 cents from about 100 cents as recently as Aug 12.

Rising risks in Singapore's bond market were highlighted in the missed payment by Swiber, which operates construction vessels to support the offshore oil and gas industry.

Ms Magdalene Teo, fixed income analyst at Julius Baer, said: "While the current low interest rate environment offers some reprieve to companies in terms of lower funding costs, those companies with higher leverage may find it challenging to refinance their upcoming maturities as local banks assess their exposure."

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A version of this article appeared in the print edition of The Straits Times on September 01, 2016, with the headline 'S'pore retail investors face losses as bond risks rise'. Print Edition | Subscribe