More turbulence looms over Singapore bond market: S&P

The recent turbulence in Singapore's corporate bond market is unlikely to subside in the next 12 months, a note from ratings agency Standard & Poor's (S&P) said on Thursday.

The agency believes that defaults or distressed exchanges are unlikely to remain concentrated in the energy and commodity sectors.

"The troubles faced by Indonesia-based mobile-phone distributor and retailer PT Trikomsel Oke Tbk and Hong Kong-based industrial fishing company Pacific Andes Resources Development Ltd (PARD) highlight the widespread nature of the problem in Singapore's bond market," S&P said.

"Both companies operate in the consumer sector, which is commonly seen as a defensive industry."

S&P referenced a filing to the Jakarta stock exchange on Jan 4, 2016, in which Trikomsel confirmed that its obligations to pay its creditors will be suspended while it works out a restructuring. The suspension will last for 45 days and could be extended.

"This was reported to be the first default in the Singapore bond market since 2009," S&P said.

Also, S&P believes that the market may see its second default in less than three months as PARD may not honour some obligations on its 8.5 per cent, S$200 million notes due 2017.

S&P noted that in a Singapore stock exchange filing on Jan 10, 2016, the company disclosed that it had received a letter from bond trustee HSBC Holdings PLC alleging breaches on the bonds' terms. The bonds' next coupon payment is scheduled for Jan 30, 2016.

"In an active search for yield, Singapore investors have turned to riskier bonds over the past seven years. This trend was shaped and fueled by low interest rates since the global financial crisis and the absence of corporate defaults," said S&P's credit analyst Bertrand Jabouley.

"This has allowed lesser known companies with weaker capital structure, earnings profile, track record of operations, and sometimes substandard information disclosure to access the market, generally with unrated bonds."

This article was first published on January 14, 2016.
Get The Business Times for more stories.