Corporate bond sales in Singapore dollars peaked at S$32.8bn in 2012, according to Monetary Authority of Singapore data, a far cry from the S$3.9bn market size in 1998.
As with so many of Asia’s local currency markets, the roots of that growth lie in the wake of the financial crisis, when the MAS moved to allow high-quality foreign issuers in an effort to broaden the market. A year later, a rating requirement was dropped, and volumes grew.
It was not until the aftermath of the global crisis 10 years later, however, that Singapore morphed into an open market where foreign issuers would raise funds side by side with local companies, tenors stretched to 30 years and structures evolved beyond the plain vanilla.
Clifford Lee, DBS Bank’s global head of fixed income, remembers the early days as “rather rudimentary”, with banks the dominant investors and floating rates the standard. Execution, he said, “was more like a syndicated loan”.
When DBS launched the city’s first bookbuild – for its own S$1.5bn 5.75% Tier 1 issue – in 2008, some investors questioned the need for a guidance range and a one-day pricing deadline, versus the usual private placement.
“The new bookbuilding process was quickly accepted when it was soon realised that the it was bringing far more investors than the 10–15 participants in privately placed deals, and that meant more liquidity and bids/offers in the secondary markets, which led to higher opportunities for investors to actually trade the bonds,” said Lee.
Extremely low rates forced investors down the credit curve, thus opening up the market for small and medium sized issuers.
“What really provided the impetus was the concurrent growth in the Singapore private bank investor base from 2009, who were looking for new higher-yielding instruments, and the increased funding requirements of domestic mid-cap companies,” said Winston Tay, ING’s head of Asia debt syndicate.
The growth of the market brought with it new risks around the concentration of wealthy individuals in some deals. Private banks were getting high concessions to push the bonds to their clients, and were happy to provide margin financing – of up to 100% in one deal at the height of the boom. When crude oil prices crashed in late 2014, the resulting restructurings in the marine services sector triggered a backlash as investors smarted from their losses.
The impact, however, was not as widespread as initially feared and appetite for risk is returning, albeit slowly, with investors going down the duration curve or capital structure in search of yield rather than into more mid-cap names.
Lee believes the Singapore dollar market is ready for its next chapter of growth.
“The sheen of the Singapore dollar as a currency for foreign bond investors has not shone through yet,” said Lee. “Once foreign investors want to buy the currency, then the playing field expands manifold.”