Investors Steer Clear Of Weak Corporate Bonds As Default Risks Rise

With a record amount of maturing debt, companies in struggling sectors will likely face refinancing risks in the new year as investors are going for higher-grade corporate bonds.

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When Hyflux defaulted on its retail bonds in April, experts initially feared that this will push investors to steer clear of Singapore bonds. Now, investors have continued to pour funds into local bonds, but with a caveat—they are only choosing issuers with strong track records, leaving companies in weaker sectors to scramble for financing.

“The high-yield space continues to feel the effects of weakened investor sentiment. As such, the Singapore wholesale bond market has for the past 12 months been dominated by stronger credits including banks, financial institutions, statutory boards and government-linked corporations,” notes Trevor Chuan, Partner – Capital Markets Practice, WongPartnership LLP.

UOB data show that transaction volume in the Singapore bond market grew 23.7%, amounting to a total issuance of $21.07b from 75 deals. The jump in issuance of local currency corporate bonds was due to large issuances, led by government-owned institutions.

However, investors have grown more selective this year, spooked by a string large-scale defaults and a record amount of maturing debt. “Trend-wise, investors have been more prudent and astute in choosing bonds, and there is an increased demand for tighter covenant terms that would afford bondholders with greater protection. This is likely influenced by a number of notable defaults in recent years and as weaker economic conditions are expected to send more companies into distress,” says Renu Menon, Director for Corporate & Finance, Drew & Napier.

Perpetual securities on the rise