Insolvency limbo: the SGD bond market

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Insolvency limbo: the SGD bond market
The Singdollar bond market is grappling with an unprecedented number of insolvencies. What lessons are there for the investment community?

SAT, JUL 14, 2018 - 5:50 AM

GOODBYE credit boom, hello insolvency limbo. In June, precision- engineering firm CW Advanced Technologies became the latest issuer to seek a court order to stave off creditors, after its plan to re-tap the bond market to redeem its first series of notes got quashed by poor market sentiment. Since November 2015, at least 13 issuers have defaulted on a total of 23 Singdollar bonds by missing coupon payments, failing to repay note holders at maturity, filing for judicial management, filing for bankruptcy protection and in one case breaching a financial covenant. The number excludes companies like Ezion, which strictly speaking has not legally defaulted on any notes since it got note holders to agree to swap their debt for equity through an out-of-court process before its next coupon was due.

That's S$3.2 billion in face value of Singdollar bonds and perpetual securities rocked by defaults, representing 2.6 per cent of the S$123 billion outstanding Singdollar corporate bond universe, which includes government agencies and statutory boards.

Among the defaulted, Marco Polo Marine has returned to solvency after note holders agreed to swap their debt for equity. But 10 other issuers remain stuck in various stages of restructuring while two have been liquidated.

Unlike Singapore's stock market, the Singdollar bond market is still in its infancy.

It was only in 2012 that high-yield Singdollar bond and corporate perp sales really took off, with Genting Singapore tapping the market with a S$1.8 billion perpetual issue, followed by a second one that raised S$500 million.

That bull market offered companies a convenient way to diversify their capital structure by reaching out to affluent investors who didn't ask too many questions. Better still, perps could be accounted as equity rather than debt in a company's books.

Now, one sinking ship after another, that value proposition has been called into question.

A debt capital markets lawyer here told The Business Times: "When I first came in, I was actually very shocked by the whole process of how easy it is to raise a bond. Issuers want to issue bonds quickly but don't want to spend on fees, so that comes at the expense of credit ratings, and the due diligence process.

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