In its latest newsletter Rickmers Maritime noted that several Singapore bond issuers are facing uncertainty as they attempt to restructure and highlighted issues relating to the minimum sum invested, and resulting liquidity issues, and the types of investors involved in the corporate bond market.
It noted that the minimum sum that can be invested in Singapore corporate bonds is SGD250,000 ($174,661) and that this was different to more mature markets in Europe and the US, where in the latter $1,000 per bond was typical. As a result the trading liquidity of Singapore was very low, which prevented price discovery and limited the ability to re-sell.
“Due to low trading liquidity, any plan to restructure the notes is likely to be met with high resistance as many noteholders are holding on to their original investments,” it said.
There is also an issue in terms both who the investors are and how they invest.
Singapore bonds are sold “accredited investors” who have assets of over SGD2m or earn more than SGD300,000 a year.
“While ‘accredited’ investors are presumably more financially savvy, there are amongst them many less experienced private banking clients who have invested their life-time savings in high-yield bonds. It also does not help that some of the bonds were purchased with a levered position, amplifying bondholders’ losses when issuers default,” Rickmers Maritime commented.
The sales tactics of Singapore banks in the selling of corporate bonds have come under scrutiny in the local press recently with investors angry at proposed restructurings.
While in Singapore the focus has been on individual investors Rickmers Maritime noted that in more mature markets there were many more institutional investors.
These institutional investors represent individual bond investors who opt to invest in bonds not directly but via well-diversified bond funds,” it said.
“This method of investing via funds diversifies risk significantly and leaves the management of bonds to professionals. Without such institutional support, bondholders are themselves left to follow the issuer’s periodic financial disclosures and industry conditions, which many are not equipped to do so.”
Rickmers Maritime continues to work to get its bondholders to accept a proposed restructuring on its SGD100m notes would see partial redemption of SGD60m of the issue by way of an equity swap for 60% of the units in an enlarged trust. While the maturity date of the remaining SGD40m in bonds will be moved to November 2023 from May next year.
“We are doing all we can to achieve a successful restructuring and avoid a liquidation scenario. Winding up is a last resort if all else fails, and is not ideal,” Soeren Andersen, ceo of Rickmers Trust Management said in the newsletter.
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