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Singapore regulators may relax conditions for retail bond 'seasoning' framework

SINGAPORE regulators could lower some hurdles for selling wholesale bonds to retail investors, following feedback from the public.

The latest proposals will relax conditions on deal size, a company's past issuance and profitability. The Singapore Exchange (SGX) will also update the listing manual on matters related to trustees, who are typically responsible for taking action against defaulters on behalf of bondholders.

Those proposals are part of a plan to introduce a framework that will allow issuers to offer wholesale bonds - which were initially sold to institutional investors in larger lots - to retail investors in smaller lots after a six-month "seasoning" period. The aim of seasoning is to allow the market to assess the bonds' value among sophisticated investors.

Following a public consultation in September, SGX plans to ease some of the conditions initially proposed.

Although most call and put options will still be disallowed, issuers' early redemption options for the purpose of changes in the law will be acceptable.

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Issuers may also offer secured bonds, including covered bonds, which are debt instruments backed by the cashflow of underlying assets such as mortgages.

The proposed minimum size of the initial institutional offer will also be halved to S$150 million from S$300 million.

A profitability test for the issuer will be relaxed, to an average net profit and a positive net operating cash flow for the three most recent audited financial years. The initial proposal was for an issuer to have a net profit over the previous five years.

SGX will also change the listing rules on trustees for retail bonds to reflect existing language in the Securities and Futures Act. A public consultation on the trust-related changes will last through Jan 23, 2015.

But SGX does not plan to prescribe provisions in the trust deed, such as access by trustees to financial records and the submission of quarterly reports, preferring to leave such terms to commercial negotiations between the issuers and trustees.

The Monetary Authority of Singapore (MAS) said it will also impose a minimum subscription of 20 per cent by institutional and accredited investors, to demonstrate confidence in the offering.

The seasoning framework is targeted for implementation by mid-2015.

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