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Singapore's wealthy lured to risky bonds
SINGAPORE'S millionaires are bankrolling makers of tyre rubber and frozen salmon samosas in their quest for higher returns as smaller companies tap the island's bond market, driving yields to a 13-year high.
Companies including locally listed seafood supplier Pacific Andes Resources Development Ltd and Halcyon Agri Corp, both valued at less than S$600 million, sold Singapore dollar-denominated bonds for the first time last month with coupons above 5 per cent. Rates on corporate notes in the city-state average 4.3 per cent since Dec 31, one percentage point more than all of 2013, according to data compiled by Bloomberg. Junk yields in Asia average 7.3 per cent, some 58 basis points higher than last year, a JPMorgan Chase & Co index shows.
With bank deposits in Asia's largest wealth-management centre earning less than 1 per cent, the island's more than 100,000 high-net worth individuals are looking to debt capital markets for better-yielding investments. Private banks bought at least 90 per cent of the two companies' S$325 million of notes, people familiar with the matters said. DBS Group Holdings Ltd expects more issues from small to medium enterprises.
"The market has seen increased activity in smaller-sized high-yield transactions with a good allocation to private banks," Vishal Goenka, the Singapore-based head of local-currency credit trading for Asia at Deutsche Bank AG, said recently. "However, liquidity in the secondary market on these issues has been minimal and pricing on credit metrics looks stretched at times."
About 40 per cent of this year's Singapore dollar bond issuance offered coupons of at least 4 per cent, or spreads of about 280 basis points over government debt, the data show. That compares with just over a quarter for all of last year, and 2012. Since Dec 31, less than 10 per cent of bonds in Thailand and no Malaysia notes offered premiums that high.
Demand for yield is making it easier for Singapore small-cap companies to raise debt in the public markets, with some selling bonds equivalent to 10 times their annual net profit. Perennial Somerset Investors Pte, whose parent owns a tower near the Orchard Road shopping strip, raised S$229 million of four-year debt in March via a 10 per cent note, the highest coupon yet from a Singapore-based issuer of local-currency debentures.
"The main thing we've seen lately has been a rise in interest for Asian high-dividend funds hedged in Singapore dollars," Mark Paine, the Singapore-based chief executive officer of Meyado Private Wealth Management Ltd, said a recently. Wealthy locals are being attracted by the high yields on offer, he added. Bloomberg