What you need to know about Singapore dollar-denominated bonds
Fitch Ratings expects issuance to grow in the short term but sees certain roadblocks to long-term growth.
The current lack of investor depth, after-market trading liquidity, and credit ratings were cited by Fitch Ratings as barriers to growth in the long term.
Fitch also expects the appeal of perpetual hybrid bonds to continue within the SGD bond market given that they offer investors a yield of around 5%-6% p.a.
Here’s more from Fitch Ratings:
Issuance of SGD-denominated bonds by corporates rose sharply to SGD8.4bn so far in 2012 compared with SGD9.5bn for the whole of 2011. Attractive fundamentals, from both issuer and investor perspectives, are behind the growing interest in SGD bonds.
From the issuer's perspective low interest rates in the 3%-6% range is one of the main attractions. This tends to be confirmed by the number of non-Singapore based issuers participating, who still view the interest rates as favourable after swapping costs - out of the 33 corporates who issued SGD bonds year-to-date, seven were non-Singapore based.
For investors, SGD bonds offer a significant yield pick-up over cash deposit rates in Singapore, which are currently at around only 0.5% with the major banks. The investor base so far is predominantly high-net-worth individuals in Singapore or alternatively high-net-worth individuals around Asia Pacific who have large amounts of cash parked with banks in Singapore.
However, there is little after-market liquidity as this investor base of high-net-worth individuals are largely buying to hold. In addition, the current absence of credit ratings on the vast majority of SGD bond issuance may need to be addressed to encourage more international institutional investors to participate. Hence, the ability of the SGD bond market to develop significant depth and trading liquidity will determine whether the current growth momentum in SGD bond issuance is sustainable over the long term.