S'pore investors turn to riskier bonds

[Stephen]

http://www.valuebuddies.com/thread-3308-...#pid104374

Junk bond crisis is brewing in Singapore...

There is no doubts about it.

We haven't had junk bond crisis in Singapore ever. However, given the aggressive iintermediation by local banks as originator of corporate debts and the aggressive appetite especially amongst high net worth individuals, aka private banking clients, due to persistently low borrowing rates tied to sibor, there are so many that has leverage up to enhance yields on the corporate bonds that were targeted at them (denomination typically around S$250k and above).

Although compiling the database takes quite a bit of effort (via SGX announcements), it is quite clear that Tom, Dick, Harry, Ah Beng, Seng and Lians have made a beeline to tap the pool when the window was opened until earlier this year.

Even though we saw a rare FCL 3.65% retail tranche and the latest Aspial 5.25%, I deemed a sign that corporates no longer have easy assess to the swift placement of debt papers via the high net worth channel. Hence, they have to take the trouble to reach out to the relatively virgin retail segment.

The signs are there and the threat is real. No price for guessing but roadside sources said that there are no longer bids for several O&G highly leveraged companies with abundant series of normal debts and perpetual papers.

Hopefully, the delay in levelling the playing field between the high net worth and retail players have helped saved some innocent retail $ but for sure there are many hurt net worth individuals.

Alarmed and Worried
GG

GG got any high net worth individuals got hurt?

Any bonds of local companies of late go bust can share.

Dunno details but heard quite a fair bit of forced selling during the volatile period and quite a number of bankers turn Green Hulks

Ok i found it. Trikomsel

http://www.bloomberg.com/news/articles/2...bt-workout

[greengiraffe]

http://www.valuebuddies.com/thread-567-p...#pid121317

If the risks are worth assuming, banks won't just be contented with fee income...

[CityFarmer]

http://www.valuebuddies.com/thread-567-p...#pid121317

If the risks are worth assuming, banks won't just be contented with fee income...

Bank is having different biz model, right?

A property agency, can't be blamed for "be contented with fee income", by not participating in a booming property development. Tio bu? 

If insurance companies aren't participating, then I smell a rat. Do you share the same? 

[Temperament]

Just like an IPO, if it's so "good" very little in term of % is given to the Public tranche.
And you have to ballot for your share if you are selected.
So if the bond is so good why so much are left for you and not grab by Instituions?
Do you think you can know more then them?

[greengiraffe]

This is the beginning of the end of yet another episode for retailers and their hard earned $ 

I have seen too much hard earned $ being sucked by the hungrier parties in town. Of the 4 names quoted in the article, only FCL's credit is more respectable but the paper's yield is too low relative to the upside potential and dividend yield presented by the investments in the mother shares.

The mere reason why SGX is in such a sad state is largely due to the failure of retailers and the majority of remisier community to upgrade themselves thru the repeated crisis over the last 2 decades starting from the Clob saga post AFC, the dot.gone fever, the S Chip crisis that coincided with GFC and the lousy slate of new IPOs that failed to replace the quality names that were delisted over the years on SGX.

So far SGX has made no attempts to level the playing field on the retail and accredited investors segment (net worth >S$250k). The main reason why the retail corporate bond market is opening up is due to the rising difficulties faced by companies to tap the accredited investors segment and hence their willingness on the advice of the investment bankers to take the pains to tap the retailers. Accredited investors dwindling demand are largely driven by fears of rising global interest rates and declining secondary mkt liquidity for corporate bonds on dimming corporate earnings outlook and abundant supply of high risks credits.

http://www.straitstimes.com/business/tim...tail-bonds

The retail bond market has started to stir with a string of new issues in recent months.
So far this year, four companies have issued bonds aimed at the retail investor, compared with just one last year. The Government has also launched its Singapore Savings Bonds (SSB), with the first tranche being sold last month.
The four corporate issuers - Perennial Real Estate Holdings, Oxley Holdings, Frasers Centrepoint and Aspial Corp - have all seen their issues being over-subscribed. They are offering yields of between 3.85 per cent and 5.25 per cent, while the SSB has an average yield of about 2.8 per cent. Investors can buy these corporate bonds for as low as $2,000 a lot. With a 5 per cent yield, this means the bondholder will get $100 every year for each bond bought.

[greengiraffe]

Hopefully not many innocent retailers got hurt when the musical chairs stop... http://www.straitstimes.com/business/oxley-raises-retail-bond-issue-size-on-strong-demand

The Straits Times
Oxley raises retail bond issue size on strong demand, Business News & Top Stories - The Straits Times
Business News -Developer Oxley Holdings has received such "overwhelming demand" for its retail bonds that it has more than doubled the total issue size.. Read more a tstraitstimes.com.

[greengiraffe]

As I have previously mentioned, MAS is way behind the curve in terms of levelling the playing field. HNW individuals and fun mgrs have already benefited from a previously buoyant local Fixed Income mkt. The recent pick up in retail issues are largely due to corporates with poorer credit standing being unable to borrow from the banks competitively.

Caveat Emptor 

http://www.straitstimes.com/business/mas...corporates

MAS finalising rules on retail bonds from corporates

Published
3 hours ago
  [url=http://www.straitstimes.com/business/mas-finalising-rules-on-retail-bonds-from-corporates#][/url]
The central bank is in the midst of finalising regulations that will see corporates issue bonds to the retail market at a lower cost, said a senior Monetary Authority of Singapore (MAS) officer.
The rules could also see retail investors tap corporate bonds from as low as $1,000, down from the current minimum denomination of $2,000.

[cfa]

Many years ago , they encouraged to buy unit trust , now J bonds .

[greengiraffe]

Singapore Landlords Discover Perpetual Debt Is the New Equity
2015-11-16 16:00:01.0 GMT
 
 
By Christopher Langner, David Yong and Pooja Thakur
     (Bloomberg) -- Singapore landlords are loading up on bonds masked as equity to get around new rules curbing their debt amid a property slump.
     Real-estate investment trusts issued a record S$700 million
($492 million) of perpetual notes with no set maturity date in
2015 and they’re likely to sell more, according to Fitch Ratings. The Monetary Authority of Singapore is capping borrowings of REITs at 45 percent of assets from next year and debt that can be considered equity offers landlords a way of complying with the stricter rules.
     Falling values, rents and occupancies for debt-backed properties could tip Singapore’s economy further into trouble amid the slowest growth in three years. Office rents may fall as much as 7 percent this year and another 8 percent in 2016 as demand slows, according to DTZ, while house prices keep declining. Global non-financial companies seeking to cut their leverage have issued more than $50 billion of perpetuals this year.
     "With the lower leverage threshold, there might be more Singapore REITs who will look to tap this source of funding given it is still treated as equity instead of debt," said Singapore-based Tim Gibson, co-head of global property equities at Henderson Global Investors Ltd. His firm manages about $123 billion worldwide. “Investors continue to seek yield in this environment.”
     On Oct. 26, office landlord Keppel REIT sold S$150 million of perpetual bonds without a so-called step-up coupon, a gradually rising interest rate that’s usually a feature of such bonds. It sold the notes at 4.98 percent, 183 basis points more than seven-year debt it sold in February. In the same month, business park owner Ascendas REIT raised S$300 million issuing similar notes, while apartments specialist Ascott Residence Trust issued S$250 million of them in June.
     Under global accounting rules, bonds with no fixed maturity that allow the deferral of coupon payments may be treated as equity. Singapore regulators will insist REITs’ notes meet those requirements, as well as having no step-up in interest rates and being subordinate to other creditors. While such features reduce the allure for investors, they benefit property owners when falling asset values cause their leverage to rise.
     The value of Singapore’s office buildings fell 0.1 percent in the quarter ending Sept. 30 from the previous three months while shops declined 0.3 percent, according to the Urban Redevelopment Authority. House prices dropped 1.3 percent, the most since the second quarter of 2009, according to data compiled by Bloomberg.
     “Most Singapore listed REITS have good credit quality,”
said Neel Gopalakrishnan, an emerging markets fixed income analyst at Credit Suisse Group AG’s private banking and wealth management unit in Singapore. “Hence, there is likely to be good demand” for their perpetuals.
 
                        Rising Leverage
 
     Singapore’s more than 30 listed REITs had an average debt to asset ratio of 34.6 percent at the end of September, versus
32.8 percent from a year earlier, according to data compiled by Bloomberg. OUE Hospitality Trust had the highest leverage at about 41.9 percent, up from 32.4 percent over that time. It didn’t respond to e-mail and phone calls seeking comment.
     Frasers Hospitality Trust’s, whose leverage stood at 38.9 percent versus 39.1 percent on March 31, maintains a prudent approach to capital management strategy and would employ an appropriate mix of debt and equity to maximize returns to shareholders, it said by e-mail on Monday.
     The new cap on REITs’ borrowings takes effect from Jan. 1, and leaves smaller room for some to take on new debt to fund acquisitions or repair their balance sheets, according to Fitch.
The threshold replaces existing limits of 60 percent for rated trusts and 35 percent for those without a credit score, the Monetary Authority of Singapore decided in July.
 
                           Still Room
 
     Singapore’s listed REITs could issue as much as S$12.5 billion of traditional debt without breaching the new threshold, Hasira De Silva, a Singapore-based analyst at Fitch said in an interview. That leeway narrows to S$7.5 billion if their S$110 billion of assets suffer a 10 percent depreciation, he said.
That’s based on their 34 percent leverage at the end of September.
     “The perpetual will be used by Singapore REITs in 2016 to fix balance sheets as required, because we expect more pressure on asset values then,” De Silva said.
     Buyers of the notes will tend to be individuals rather than funds, according to Deutsche Bank AG. That could translate into higher volatility.
     “Most of the demand for Singapore dollar perpetuals has been from retail investors,” said Vishal Goenka, head of local currency credit in Singapore at Deutsche Bank. “As issuance of perpetuals picks up in future, caution is advised in a higher interest-rate environment.”

[greengiraffe]

This is the beginning of the end of yet another episode for retailers and their hard earned $ 

I have seen too much hard earned $ being sucked by the hungrier parties in town. Of the 4 names quoted in the article, only FCL's credit is more respectable but the paper's yield is too low relative to the upside potential and dividend yield presented by the investments in the mother shares.

The mere reason why SGX is in such a sad state is largely due to the failure of retailers and the majority of remisier community to upgrade themselves thru the repeated crisis over the last 2 decades starting from the Clob saga post AFC, the dot.gone fever, the S Chip crisis that coincided with GFC and the lousy slate of new IPOs that failed to replace the quality names that were delisted over the years on SGX.

So far SGX has made no attempts to level the playing field on the retail and accredited investors segment (net worth >S$250k). The main reason why the retail corporate bond market is opening up is due to the rising difficulties faced by companies to tap the accredited investors segment and hence their willingness on the advice of the investment bankers to take the pains to tap the retailers. Accredited investors dwindling demand are largely driven by fears of rising global interest rates and declining secondary mkt liquidity for corporate bonds on dimming corporate earnings outlook and abundant supply of high risks credits.

http://www.straitstimes.com/business/tim...tail-bonds

The retail bond market has started to stir with a string of new issues in recent months.
So far this year, four companies have issued bonds aimed at the retail investor, compared with just one last year. The Government has also launched its Singapore Savings Bonds (SSB), with the first tranche being sold last month.
The four corporate issuers - Perennial Real Estate Holdings, Oxley Holdings, Frasers Centrepoint and Aspial Corp - have all seen their issues being over-subscribed. They are offering yields of between 3.85 per cent and 5.25 per cent, while the SSB has an average yield of about 2.8 per cent. Investors can buy these corporate bonds for as low as $2,000 a lot. With a 5 per cent yield, this means the bondholder will get $100 every year for each bond bought.

http://www.valuebuddies.com/thread-6001-...#pid122885

More than half of the Singapore dollar bonds that are trading with yields above 10 percent are from the oil services industry, the data show. The median yield for the 312 notes is 4.03 percent.

Banks may have done well passing on the buck to their clients... but if they are unable to recoup the loans extended to the clients to finance the purchase of these high yield bonds, then banking sector write-offs could be on the horizon...