Defaults reveal flaws in S’pore bond market
> Investors blame trustees for delay in payment from issuers
HONG KONG: A recent spate of defaults in the Singapore bond market has triggered calls for a reform of the city state’s depository system, which makes it harder for bondholders to enforce their rights than in the global market.
Investors have struggled to demand immediate repayment from issuers in default, and many have blamed trustees for seemingly delaying the process.
Holders of Swissco Holdings’ SG$100 million (RM302 million) bonds, on which a S$2.9 million Oct 16 coupon payment remains unpaid, wrote to the Monetary Authority of Singapore last month to complain that “the notes trustee does not seem to have an established process for noteholder verification that works”, according to a letter seen by IFR. The trustee is DB International Trust (Singapore), a unit of Deutsche Bank.
Much of the delay comes from efforts to verify that those demanding an acceleration of payment are really bondholders, and that part of the process has proved to be a bottleneck. Trustees do not keep names of bondholders, so they have to request them from the bond depository, which in Singapore is the Central Depository (CDP), under the Singapore Exchange.
“The manner in which the CDP system is set up can cause some additional complexities,” said Andy Ferris, a partner at Hogan Lovells Lee & Lee.
“For example, the trustee may have difficulty obtaining the list of bondholders from CDP, which can make verifying holders’ positions difficult. Only the issuer is seemingly entitled to that list on request.”
This differs from the process for international bonds, in which it is more straightforward for trustees to verify bondholder information.
“Euroclear or Clearstream can provide a statement of account for the purpose of proving holdings and custodians can provide holdings information via SWIFT. That streamlines the verification process,” said Ferris.
Market sources said the CDP had changed its stance in recent weeks, and indicated that it could disclose bondholder lists to trustees if they could show good cause for requiring it, and pay a fee.
“The bond trustee is authorised under the trust deed agreement between bondholders and the bond issuer to obtain the list of bondholders from CDP,” said a spokesperson for CDP.
“A bond trustee can do so by producing the trust deed to CDP. Upon verification of the bond trustee as identified in the trust deed, CDP will release the list of bondholders as at a specific date within two business days.”
It may take only two days to obtain the list of registered bondholders, but that is only part of the story. Some bonds are held in nominee accounts, meaning that there could be several layers of ownership.
In the global markets, an electronic message can be sent through Euroclear or Clearstream to reach all of the banks involved in the network of holdings. The last one in the chain then sends the details of the beneficial owner to the trustee.
In the Singapore bond market, every step of that process has to be performed manually. That means the trustee needs to contact every bank involved, until it obtains details of the ultimate owner of each bond, which means it can take more than a week to identify bondholders, according to market sources.
The situation has been complicated by the investor base, with some highyielding Singapore dollar bonds held by more than 100 individual investors and no institutions. – Reuters
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