Singapore’s Debt Capital Market – Shaken but Not Stirred?

By Stefanie Yuen Thio

There is a new villain in town, and his name is “Bond”. Junk Bond.

A View to a Kill

Until the 3rd quarter of this year, investors had been making a killing on Singapore’s exponentially growing debt capital market. Look at the statistics: From 2010 to 2014, the corporate bond market grew at a compounded annual growth rate of 35% to hit a record high of S$200 billion in 2014. In 2014, they constituted 21% of total investments by asset class[1]. The growth continued last year, with fresh issuances of 162 corporate bonds, amounting to S$22.81 billion[2]. In the first 9 months of this year, primary bond offerings from Singapore-domiciled issuers reached US$21.5 billion (up 25.2% in proceeds compared to the same period in 2015). However, Singapore’s local currency bond issuance in Q3 2016 saw a 63.7% decline from Q2 2016.[3]

With world markets facing negative interest rates, investors turned to high yield bonds, and issuances of corporate paper bearing >6% coupon jumped from only 1 in 2010, to 24 in 2014[4].

Notwithstanding choppy economic conditions, Singapore’s bond market continued to enjoy investor confidence in 2016, with one Bloomberg headline in June referring to the “Singapore Bond Market Frenzy”, and the Straits Times questioning the “tide of irrational exuberance sweeping across global bond markets”.

Skyfall

Investors’ honeymoon period with bonds came to a crashing halt in the third quarter of this year when main board listed Swiber Holdings Limited announced that it had appointed provisional liquidators. The offshore oil & gas company had 5 wholesale bonds listed on SGX-ST, and as at September, it had announced defaults on its S$150 million 6.5% Trust Certificates due 2018 issued by Swiber Capital Pte. Ltd, and its CNY 450 million 7.75% Fixed Rate Notes due 2017.

Since then, more issuers have defaulted on their bond payments, including Perisai Petroleum Teknologi and Swissco, both also in the oil & gas sector. Other troubled issuers are seeking maturity date extensions and/or covenant waivers. These include Ezra Holdings, Rickmers Maritime, Ausgroup and Marco Polo Marine, all also involved in the oil & gas or shipping sectors.

[A snapshot of the consent solicitation exercises undertaken in the past 12 months for SGX-listed companies/securities to vary or waive the terms of their bonds is set out in Table A.]

Table A – Consent Solicitation Exercises in past 12 months

No. Issuer Industry Variation/Waiver Requested
1 Rickmers Maritime Trust Shipping
  • Haircut
  • Extension of maturity
  • Reduction of interest payable

 

2 Perisai Capital Oil & Gas
  • Waiver of non-compliance
  • Deferment of interest payment
  • Extension of maturity
  • Amendment of financial covenants

 

3 Ezra Holdings Limited Shipping
  • Waiver of non-compliance

 

4 Swiber Holdings Limited Oil & Gas (Shipping)
  • Amendment of financial covenants
  • Waiver of non-compliance

 

5 Interplex Holdings Ltd. Precision Engineering
  • Amendment of note terms to include call option
  • Waiver of post-amendment non-compliance

 

6 Marco Polo Marine Ltd. Oil & Gas (Shipping)
  • Extension of maturity
  • Waiver of non-compliance

 

7 KrisEnergy Ltd. Oil & Gas
  • Amendment of financial covenants

 

8 Otto Marine Services Pte. Ltd. Shipping
  • Extension of maturity
  • Waiver of non-compliance

 

9 Halcyon Agri Corporation Limited Natural rubber
  • Suspension of financial covenants in connection with a takeover

 

10 Nam Cheong Limited Shipping
  • Amendment of financial covenants
  • Waiver of non-compliance

 

11 AusGroup Limited Oil & Gas (Construction)
  • Extension of maturity
  • Waiver of non-compliance

 

12 Miclyn Express Offshore Limited Shipping
  • Amendment of financial covenants
  • Amendment of redemption terms

 

13 Tat Hong Holdings Ltd Heavy Equipment
 
  • Amendment of financial covenants

 

14 TML Holdings Pte. Ltd. Financial Services
  • Amendment to allow early redemption

 

15 Cordlife Group Limited Medical (Stem cells)
  • Amendment of note terms to include call option
  • Waiver of non-compliance
  • Redeem all the notes

 

16 Dyna-Mac Holdings Ltd. Oil & Gas (Construction)
  • Amendment of note terms to include call option
  • Redeem all the notes

 

17 Religare Health Trust Medical (Investment)
  • Approval of transaction
  • Waiver of non-compliance in relation to transaction

 

18 Protelindo Finance B.V. Holding Company (Telecommunications)
  • Amendment to note terms to replace issuer

 

19 PT Logindo Samudramakmur TBK Oil & Gas (Shipping)
  • Amendment of financial covenants
  • Waiver of non-compliance

 

20 Ascendas India Trust Real Estate
  • Amendment of financial covenants
  • Waiver of non-compliance

 

21 First REIT Real Estate (Healthcare)
  • Amendment of financial covenants
  • Waiver of non-compliance

 

22 Biosensors Investment (Singapore) Pte. Ltd. Medical (Research, Development, and Manufacture)
  • Amendment of note terms to facilitate amalgamation and subsequent delisting of guarantor
  • Waiver of non-compliance in relation to amalgamation and subsequent delisting of guarantor

 

 

Tomorrow Never Dies

These high profile defaults spooked the market, and investors shied away from entertaining consent solicitation exercises. But that appears to have been a knee jerk reaction in the immediate aftermath of Swiber’s shock announcement.

The defaults seem principally confined to the oil & gas and shipping sectors, industries hard hit by the oil price plummet, a factor not within their control. According to Bloomberg, the defaults only account for 0.5% of Singapore’s total bond market worth $149 billion as at November.

While it is possible more defaults are to come, investors appear to have recovered some of their appetite for corporate paper. In the past 6 months, Hyflux and property players, Perennial Real Estate and Frasers Centrepoint, have issued bonds all of which were oversubscribed.

The Business Times also reported last week that “Prices of Singdollar perpetuals have risen sharply and investors who kept faith earlier, when poor sentiment gripped the bond market as oil and gas issues collapsed, have been amply rewarded”.

Seeking a Quantum of Solace

But this wouldn’t be Singapore if a rout in the market did not bring out investors who have lost money looking for a scapegoat.

Banks are the most obvious targets. Commentators have asked if the rebates/commissions payable by issuers to bankers for selling the bonds posed a conflict of interest and should have been disclosed. It’s a valid point. Investors should be given material disclosure on what they’re being offered, so they can make an informed decision, although it’s not clear whether the disclosure of the bank’s spread would move the needle on the investor’s decision to subscribe for the bond.

Lawyers too are to blame. With offering documents sporting longer and longer disclaimers and risk language, they become more about limiting liability than providing information. We should move towards a plain English regimen and stop hiding behind the skirts of pure legalese.

In typical Singaporean fashion, questions are also being asked about whether the government can and should do more to protect the investing public. There is a view that investors who technically qualify as “accredited” as a result of their real estate ownership should not be considered sophisticated. The Monetary Authority of Singapore has already announced refinements to the regime including empowering accredited-eligible investors to choose the level of regulatory safeguards best suited to their individual circumstances.

But ultimately, Singapore as a market needs to grow up. Our investors have to develop commercial savvy in monitoring their investment portfolio, based on their own risk profile. We cannot go crying to daddy whenever we scrape our knees on the trading room floor, and with the Spectre of a world economic recession upon us, the faster we learn these lessons, the better. That way, Singapore investors can live to Die Another Day.

[1] “Singapore Corporate Debt Market Development 2015” (2015, Monetary Authority of Singapore)
[2] “Singapore Bond Market: A 2015 Review” (18 December 2015, Bondsupermart)
[3] “Singapore bonds: Who’s borrowing where?” (November 2016, Singapore Business Review)
[4] “Singapore’s Next Bond Default Looms Amid Pacific Andes Skirmish” (12 Jan 2016, Bloomberg)

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