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Changes to give retail investors more access to bond market

SINGAPORE — The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have announced changes to make it easier for retail investors to buy bonds following a consultation paper released in September.

Changes to give retail investors more access to bond market

Reuters file photo

SINGAPORE — The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have announced changes to make it easier for retail investors to buy bonds following a consultation paper released in September.

Wholesale bonds, which are offered only to institutional and accredited investors or in large denominations of at least S$200,000, can now be offered by eligible issuers without a prospectus to retail investors after the bonds have been listed for six months.

These “seasoned bonds” can be re-denominated into smaller lot sizes and be offered to retail investors via se­condary trading.

The MAS proposed that only plain vanilla bonds will be allowed under the SGX’s framework to give greater access in the bond market to retail investors. The MAS noted that plain vanilla bonds have features such as a fixed term not exceeding 10 years, provision for repayment of the principal sum at the end of the fixed term and have periodic and non-deferrable interest payments.

Bonds that fulfil more stringent criteria can be offered directly to retail investors at the start of an offer without a prospectus. As such, these investors need not wait six months for the bonds to be “seasoned” to buy them.

The MAS also addressed concerns raised about bond liquidity in the public feedback received for the consultation paper. “Investors should take note that unlike equity securities, bonds are generally less liquid and there may not be an active secondary market for the trading of bonds. Thus, while bonds are considered less risky and volatile than equity securities of the same issuer, investors considering an investment in bonds should take into account their ability to hold the bonds to maturity,” it said.

Under the SGX’s framework, the exchange will lower the minimum issue size for the initial bond offer to institutional investors and accredited investors from S$300 million to S$150 million. It will also reduce the threshold for a company’s aggregate amount of bond issuance over the past five years on SGX from S$750 million to S$500 million.

The “look back” period of the issuer’s financial position will be shortened from five to three years, but it has to show a positive net operating cash flow on average.

A company that plans to issue “seasoned bonds” will have to fulfil criteria based on its size, listing record and credit position.

Among other requirements, the firm must have equity securities listed on the SGX or a recognised securities exchange for at least five years, or has listed or guaranteed the issuance of debt securities listed on the SGX for at least five years.

The MAS said based on the eligibility criteria, about 120 issuers in Singapore can potentially issue bonds under the SGX framework, of which about 60 can offer bonds directly to retail investors at the start of an offer without a prospectus.

The MAS is in the process of finalising the prospectus exemptions and is seeking comments on the draft regulations, to be submitted by Jan 23.

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