MAS broadens corporate bond opportunities for retail investors

SINGAPORE — Retail investors can now buy corporate bonds for as little as S$1,000, giving them a wider range of investment options to diversify their portfolios as well as earn better yields amid persistently low savings rates at the banks.

This follows the introduction of two new regulations by the Monetary Authority of Singapore (MAS) yesterday to facilitate corporate bond offerings to retail investors.

First, under the Bond Seasoning Framework, wholesale bonds which are initially offered only to institutional and accredited investors or in large denominations of at least S$200,000, can now be offered by eligible issuers to retail investors after the bonds have been listed on the Singapore Exchange (SGX) for six months. These “seasoned” bonds can be re-denominated into smaller lot sizes and offered to retail investors on the secondary market, said the MAS. Eligible issuers can also offer additional bonds to retail investors on the same terms as the seasoned bonds without a prospectus.

“The framework will enable retail investors to buy wholesale bonds initially offered to institutions and accredited investors, in denominations as small as S$1,000 six months after the bonds are listed on SGX. These bonds will be offered by issuers which meet minimum criteria relating to their size, track record and listing history. SGX currently lists 1,900 wholesale bonds which are only available in large denominations of at least S$200,000, and/or offered to institutions or accredited investors,” said the SGX.

Second, under the Exempt Bond Issuer Framework, issuers can offer bonds directly to retail investors at the start of an offer without a prospectus if they satisfy certain thresholds higher than the eligibility criteria under the Bond Seasoning Framework, added the MAS.

The MAS said the changes are part of its overall efforts to widen the investment options available to retail investors through better access to simple investment products that are relatively less risky. The new regulations followed consultations and proposals on the two frameworks in 2014.

Bonds issued to retail investors under both frameworks can be bought and sold via SGX. Mr Loh Boon Chye, CEO of SGX, said: “Retail investors are greatly interested in fixed income investments. The frameworks will widen the range of fixed income products and enable retail investors to access some of the 1,900 wholesale bonds listed on SGX, Asia’s leading bond-listing platform. Issuers, too, will gain from a bigger pool of investors. This initiative advances SGX’s efforts to build a dynamic and thriving fixed income market in Singapore.”

Mr Bernard Aw, market strategist at online financial trading firm IG, said: “The Singapore corporate bond market is not as accessible to the retail investors due to the large lot sizes, which is typically beyond what a retail investor can afford. These new regulations will make them more accessible, as the lot size will be reduced to as low as S$1,000 under the seasoning scheme. They will be significant in terms of widening the investment choices for retail investors.”

State-owned investment giant Temasek Holdings yesterday welcomed the new retail market rules and said it remained open to a retail bond offering in due course, without specifying a timeline, reported Reuters.

Retail investors have flocked to fixed-income products in recent years, such as retail perpetual capital securities, or perps, as they search for better yields amid low fixed deposit and savings rates at the banks and with the property market in the doldrums.

Perps offer higher coupons that draw yield-hungry retail investors, with companies such as integrated resort operator Genting Singapore and water treatment specialist Hyflux among the high-profile issuers that have attracted strong retail responses. However, unlike regular bonds, perps carry more risks as the securities do not have a maturity date and the issuers are not obliged to redeem the principal.