Sing-dollar corporate bond market faces rare default

Sing-dollar corporate bond market faces rare default

Earlier this week, Indonesian phone retailer PT Trikomsel Oke warned that it will likely default on its S$215 million bonds - a first for the Singapore bond market in six years.

The skyline of Singapore's financial district. (Photo: AFP/File/Roslan Rahman)

SINGAPORE: Driven by yield-hungry investors, retail demand for Sing-dollar corporate bond sales has surged in recent months. So far, about S$13 billion worth of corporate bonds have been issued this year and according to asset management firm Schroders, almost half is taken up by retail investors.

However, there are risks involved when investing in corporate bonds. Earlier this week, Indonesian phone retailer PT Trikomsel Oke warned that it will likely default on its S$215 million bonds - a first for the Singapore bond market in six years.

In October, property firms Perennial and Oxley rolled out retail bonds to subscription rates of about four times, which means demand for the bonds amount to about four times the planned issue size.

With annual payout rates of 4 to 5 per cent, corporate bonds are attractive to yield-hungry retail investors, especially private banking (PB) customers, who are often dangled generous rebates. Perennial's three-year bonds have an annual payout of 4.65 per cent, while Oxley is offering an annual payout of 5 per cent for its four-year bonds.

Mr Raymond Chia, head of credit research, Asia ex-Japan in Schroders, said: "There are one or two deals where the retail investors take up 95 to 100 per cent of the deal.

“One thing to highlight is that a lot of the banks, when they want to sell the bonds to retail investors - they tend to offer them PB rebates. So the PB rebates, based on our calculations, ranges around 20 cents on average, but there are some PB rebates which is as high as 75 cents to even S$1."

However, investor appetites may be changing. Ratings agency Standard and Poor's said it expects investors to become more selective, as they watch out for Trikomsel’s default, as it struggles to service debt obligations due to refinancing costs rise on falling consumer demand and Rupiah weakness.

Standard & Poor's Asia Pacific Director of Corporate Ratings Xavier Jean, said: "Between 2010 and today, companies across the region, whether it's Malaysia, Indonesia, or even Singapore, have taken the opportunity to raise so much debt, because it was so cheap. When things slow down, as a result, they have to service bigger debt amounts."

Many Sing dollar corporate bond issues - like Trikomsel's debt - are not rated by major ratings agencies. As a result, analysts said investors will need to do their own homework before. One will have to carefully study the business model, as well as how the debt is structured.

Depending on the outcome of Trikomsel's restructuring, analysts said Singapore could see a slower rate of bond issuances going forward.

Source: CNA/xk

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