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Singapore's Rich Turn Wary of Bonds Sold by Smaller Firms

Bloomberg logoBloomberg 7/12/2018 Denise Wee

(Bloomberg) -- Singapore’s smaller companies will likely have to pay more to roll over borrowings in the local bond market ahead of unprecedented maturities, as the wealthy investors who constitute a key buyer base get cold feet.

Recent defaults along with rising borrowing costs for private banking investors have hurt demand, according to Eastspring Investments portfolio manager Danny Tan, who helps manage the Singapore Select Bond Fund. The fund had S$854 million ($628 million) of assets under management as of May 31.

Fresh signs have emerged of stress among smaller borrowers in the local debt market this year. CW Group Holdings Ltd., a precision machine tool maker, defaulted on a bond in June. Hyflux Ltd., a water treatment and power firm, started a court-supervised debt reorganization process in May, and has defaulted on its perpetual securities.

Investors who borrow to buy local debt also face rising funding costs. Singapore’s three-month swap offered rate, a reference rate for financing costs, has soared to near the highest in over two years.

“The greatest risk you will have is the refinancing risk of the SMEs,” said Tan, referring to small- and medium-sized enterprises. Borrowers will have to issue at much higher coupons to entice private banking investors whose leverage costs have gone up, he said.

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The average yield on Singapore dollar bonds has increased 48 basis points this year to 3.51 percent, according to an ICE BofAML index.

The nation’s borrowers excluding banks face record bond maturities in 2020, with a total of S$23 billion due from now through that year, according to Bloomberg-compiled data. Singapore dollar bond sales have slumped 37 percent this year compared with the same period in 2017, hitting the lowest in nearly a decade, according to Bloomberg-compiled data.

Despite this, Singapore’s bond market isn’t likely to see a spike of defaults and the sense is that larger companies will be able to refinance with loans, according to Tan.

Amid the volatility, the fund manager prefers blue chip corporate bonds, including those sold by rated real-estate investment trusts and large companies listed on the Singapore stock exchange. With central banks tightening policy and rates rising, the fund is paring duration and looking at five- to seven-year bonds, Tan said.

(Updates with additional details on Hyflux’s restructuring in third paragraph.)

To contact the reporter on this story: Denise Wee in Hong Kong at

To contact the editors responsible for this story: Andrew Monahan at, Ken McCallum

©2018 Bloomberg L.P.

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