Given the complexity and risks of bonds as an investment vehicle, I hope that the authorities will put stronger regulations in place for public offerings.
The regulators should set strict guidelines on what type of corporate bonds can be offered to the investing public in Singapore, for the following reasons:
• Such bonds, especially high-yield ones, carry much greater risks than fixed deposits or government bonds.
The capital investment can go up or down with the movement of benchmark interest rates, the performance of the company or even the general investment climate.
There is also the risk of a bond default and liquidity.
• In evaluating the risks, a professional investor will often analyse the company's business model, its cash flow and debt ratios for a start.
The public may not have the capability to make such an assessment.
• Frustrated with the low interest offered by banks on fixed deposits, the public may be attracted to the high interest offered by such bonds without fully understanding the differences in risk and reward between the two instruments.
• Legal terms may also confuse the public. It is likely that the average investor may not know about debt seniority, fixed term versus perpetual instruments, right of redemption and other areas related to bonds.
While there have been few public bond offerings from companies in Singapore to date, this is a good time to take a hard look at protecting investors before it is too late.
Lester Lee Keng Kok