Martin Lee @ Sg
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Consultation Paper on Retail Bond Offerings

In Singapore, retail investors have a lack of choices if they want to buy a bond as there are very few bonds that are listed on the secondary (retail) market. Wholesale bonds are denominated in sizes of $200,000 and more.

consultation-paper-retail-bond-singaporeConservative investors who do not want to invest in the stock markets end up doing one of the following:

  • Chase after the best fixed deposits offers
  • Get sucked into some promotional offers with a marketing gimmick of a decent return but actually has a lower rate of return
  • Get persuaded to buy a structured deposit or structured product that a bank officer proclaims as low risk
  • Get locked into long term insurance endowment plans with not so high projected returns
  • Buy some unit trusts with a so-called dividend yield

All these is set to change as MAS and SGX looks to make bond investing more easily available to retail investors. This has taken a long time coming as this idea was mooted way back in 2010.

Two consultation papers (one by SGX and one by MAS) have been released to solicit public feedback on this:

MAS-Consultation-Paper-on-Facilitating-Bond-Offerings-to-Retail-Investors

SGX-Public-Consultation-Retail-Bonds

Issuers who meet the criteria will be able to issue bonds directly to retail investors without the hassle of coming up with a prospectus. Currently, this is one of the stumbling block as most companies find it easier to simply issue bonds to institutional investors without the additional costs of preparing a prospectus.

Looking at the proposal, it seems they are starting out on a more cautious note as the criteria is quite stringent. There are pros and cons to this approach.

Pros – Lower chance of a default and safer for investors

Cons – The coupon rate will not be so high

I find this an irony as among listed companies, you can already find companies of all sorts of quality – from the sold government-linked blue chip, to the loss making S-chip. There is no barrier to anyone buying shares in such companies and furthermore bond holders are senior to equity holders if the company goes bust.

I feel that they should lower the criteria to enable more companies to raise capital via the retail bond markets and also give investors more choices of what bonds they want to invest in.

Of course, it is essential to make sure that investors who buy bonds know what they are getting into. After all, bonds are fundamentally different from fixed deposits.

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3 comments
xyz says 5 years ago

It’s a loooong time coming becoz the banks, high net worth, and old boys club don’t want the filthy unwashed masses to dirty their country club, increase price volatility, compete with their betters, etc.

It’s only due to the growing voices of discontent that forced the old boys club to start conceding a little bit to prevent a revolution & kick the liabilities can further down the road. E.g. artificially low interest rate environment in S’pore for past 25 years, interest rates less than inflation, inability for savers to accumulate and match inflation for retirement, failure of CPF as retirement vehicle, govt suggestion is to work until you drop dead, or retire in JB old folks home, or stay with your children (if you have children and they’re willing & able to house you) & rent out your flat, etc etc etc.

Reply
    Guest says 5 years ago

    …can’t agree more.

    Reply
    Martin Lee says 5 years ago

    Dear xyz,

    Yes, this is something that they have taken a long time to implement.

    Reply
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