In the wake of the Hyflux debacle, it is perhaps time for the Monetary Authority of Singapore to consider tightening regulations around the issue of perpetual securities and preference shares by companies in favour of retail bonds (Investors can still demand probe if they back plan: Sias, April 2).
There are three good reasons for doing so.
First, it helps to develop a retail bond market. Bonds are an important part of a retirement portfolio but there is a dearth of retail bond offerings with low liquidity in Singapore.
Traditional bonds have high entry barriers of a minimum $250,000 investment and high transaction costs, putting them out of reach of most ordinary Singaporeans.
Second, it increases transparency on the financial health of a company. While companies justify the recognition of perpetual securities as equity by referencing the IAS 32 accounting standard, the practice is questionable as the securities are, for all intents and purposes, debt.
Institutional investors can calculate the true gearing of a company, but the average investor is ill-equipped to do so and may be easily misled.
Third, it helps to protect investors as bonds have higher priority in liquidation than perpetual securities and preference shares, the consequence of which is seen in the Hyflux case.
Coupon payments for bonds also cannot be deferred without defaulting and there is a fixed redemption date, providing additional protection for small investors.
The Government is rightly trying to encourage the development of a retail bond market with issues from Temasek and Singapore Airlines, and this would be a move in the same direction.
Jeremy Teo Chin Ghee (Dr)