Tuesday, May 24, 2016

Retail Bonds For Everyone?

Well, I just stumbled on this piece of news. I'm not sure why I haven't heard a peep about it from anywhere. Apparently I am the unofficial MAS media mouthpiece? Haha!

Basically, the rules regarding corporate bond issues to retail investors have been relaxed. The main change is that (a) wholesale bonds can be broken up into smaller denominations and be sold to retail investors in the secondary market or (b) companies can issue to retail bonds without a prospectus !

Since their main aim of doing this is to give retail investors more access to simple investment products, but ensuring that they are not too risky, there are some restrictions as to which kinds of bonds are affected by this change.

Here are some of the criteria:

1a) $1 billion market cap for the past 180 days, or
1b) Net assets of $500 million for the past 3 audited financial statements
2) Listed on an exchange for at least 5 years
3) Guarantees the bonds listed on SGX for at least 5 years
4) Some credit stuff

Basically, the criteria means that only pretty upright companies would make the cut.

Which is good, since the hordes of aunties and uncles pretty much will apply for anything.

I personally welcome the change. We currently only have the extremes, which are ultra safe SGS bonds on one end, and bonds like Oxley and Aspial on the other end.

2 comments:

  1. Would some retail bonds become another mini-bomb afterall among those who applied via ATM or internet banking, how many know much the businesses of these issuers?

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    Replies
    1. Hi Starlight,

      Given that pretty strict requirements, I would imagine that the new bonds issued because of this new ruling would be comparatively more "safe" compared to certain retail bonds now.

      The good thing about bond investing is that you don't need to know much about the business, it's plans and growth expectations. The essentials are how much cash does it have to make interest payments and how much of their assets, if disposed, would be under your claim to recover your capital.

      If you're holding a secured, senior bond and you know for sure that the company has a certain amount of assets, you don't really need to worry so much. The main problem is ascertaining how reliable the value of their assets in their financial documents are, and what price would it be worth in a firesale.

      Of course, as long as the business is doing well and of going concern, then you don't need to worry much about liquidation value and priority of debt.

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