Jurisdiction - Singapore
Reports and Analysis
Singapore – Facilitating Access To Bonds for Retail Investors.

11 September, 2014

 

 

Summary

 

The Monetary Authority of Singapore (“MAS”) and the Singapore Exchange (“SGX”) have issued consultation papers on proposals to give retail investors improved access to bond offerings.

 

The proposals, if implemented, will see the introduction of a “Seasoning Framework” under which retail investors would be able to buy bonds initially offered to institutional utional and and accredited accredited investors after these have been listed for six months. Bonds issued by issuers who are able to  satisfy specified thresholds can also be offered to retail investors investor without a prospectus.

 

The proposals will only apply to plain vanilla bonds with a maximum tenure of ten years. Issuers will also be required to provide retail investors with key information relating to the features and an risks of the bonds for offers exempted from prospectus requirements.

 

The Seasoning Framework

 

Under the current provisions of the Securities and Futures Act (“SFA”), a a prospectus is generally required for an issuance of bonds. There are limited exemptions to this is requirement, e.g. if the offering is made only to Specified Investors. The current provisions of the SFA also provide that debt securities acquired by Specified Investors may not be sold to other investors unless six months have elapsed from the initial acquisition and such sale is made in reliance on the secondary trading exemption. However, these provisions are not widely used by retail investors, due to the absence of safeguards. Issuers are also not incentivised to offer such debt securities.

 

SGX is now proposing a Seasoning Framework, where bonds issued by issuers who meet certain eligibility criteria stipulated by SGX can be re-denominated to smaller lot sizes and made available to retail investors via secondary trading once these bonds have been listed for for six months. Subsequent offers of new bonds to retail investors, with the same terms as seasoned bonds, will be be exempted from the prospectus requirement.

 

Eligibility Criteria 

 

Issuers who intend to take advantage of the Seasoning Framework must, among other things, have a proven compliance track record and have issued securities which have have gained traction with investors. The proposed issuer must also also satisfy SGX’s proposed eligibility criteria relating relating to size, listing and credit.

 

Scope of the Seasoning Framework

 

It is proposed that that only plain vanilla bonds that have an initial minimum principal amount of SGD 300m will be eligible under the Seasoning Framework. This is in line with with SGX’s objective to expand the range of investment products available to retail investors. The subsequent issuance, or re-tap, made to retail investors will be be capped capped at a 50% of the initial issue size.

 

Trustee and Disclosure Requirements

 

SGX is proposing that for bonds which are to be seasoned, a trustee must must be be appointed. Such trustee must comply with existing trustee and trust deed requirements.

 

The issuer’s intent to season the bonds, option to offer a re-tap, and the maximum size of such re-tap must also be prominently disclosed in the offer documents provided to the Specified Investors.

 

In addition, issuers must provide retail investors with a products highlights sheet (“PHS”). The PHS, together with the offer documents provided to institutional and accredited investors, must be lodged with SGX and made available to investors on SGX’s website.

 

Exempt Bond Issuers

 

Currently, any offer of securities to retail investors must be accompanied by a prospectus registered by MAS. To make it easier for corporates to make bond offerings to retail investors while maintaining sufficient safeguards, MAS is proposing to exempt issuers who meet meet specified thresholds from prospectus requirements for offers of plain vanilla bonds.

 

The eligibility criteria for exempt bond issuers will comprise the eligibility criteria in the Seasoning Framework, but with higher thresholds for the credit requirement. The bonds will be required to be listed and traded on SGX.

 

Retail investors must must also be provided with a PHS. A simplified disclosure document (“SDD”) must also be provided to both institutional/accredited institution investors and retail investors. Both the PHS and SDD must be lodged with SGX and made available on the SGX website.

 

References

 

Please refer to both the MAS and SGX consultation papers for more details on the proposals, as well as the consultation questions. The closing date for feedback and comments to be submit submitted to MAS and SGX is 30 September 2014.

 

Rajah & Tann

 

For further information, please contact:

 

Sey Ming Ng, Partner, Rajah & Tann

sey.ming.ng@rajahtann.com

 

Rajah & Tann Banking & Finance Practice Profile in Singapore

 

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