De­faults re­veal flaws in S’pore bond mar­ket

> In­vestors blame trustees for de­lay in pay­ment from is­suers

The Sun (Malaysia) - - SUNBIZ -

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

An im­age of the Toy­ota Prius PHV is pro­jected on a screen at a news con­fer­ecne in Tokyo yes­ter­day.

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