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May 2024

Singapore: Call made for bond default insurance

Source: Asia Insurance Review | Oct 2017

Singapore Investment Management Specialty

Singapore’s watchdog for minority shareholders and a leading law firm are proposing an insurance scheme to protect bond investors from default.
   The Securities Investors’ Association of Singapore (SIAS) and Rajah & Tann Singapore have jointly submitted to the Monetary Authority of Singapore a proposal which calls for bond issuers to take up an insurance policy at the time of issuance, so that aggrieved investors will be protected in the event of a default, according to a report in The Business Times. 
   If there is a default, the payout from the policy can go towards funding the costs of calling for meetings and legal and financial advisory fees, all of which are now largely borne by bondholders.
   Another proposed reform is for bond promoters to allocate a minimum 30% of the total bond issue to institutional investors to diversify the investor base.
   The call for reforms comes in the wake of bond defaults by offshore and marine services firms hit by a prolonged oil slump which has led to deep cuts in spending on exploration; in turn, this has hurt cash flow and compromised the firms’ ability to meet debt obligations.
   Many bondholders in Singapore belong to a disparate group of individual investors who have put up S$250,000 (US$186,000) per issue, which is a sizeable chunk of their retirement nest egg. A 
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