Faced with bond defaults, affluent Singapore investors join forces to seek better terms

November 15, 2016 1:39 AM EST

Storm clouds gather over Shell's Pulau Bukom oil refinery in Singapore January 30, 2016. REUTERS/Edgar Su/File Photo


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By Aradhana Aravindan and Saeed Azhar

SINGAPORE (Reuters) - When troubled Malaysian oil and gas services provider Perisai Petroleum Teknology asked bondholders for more time to pay them back, one investor from Singapore said she thought the bonds' coupons had something to do with free parking. Roughly two months later, her self-declared ignorance is giving way to an activist spirit. The investor and other affluent Singaporeans holding Perisai bonds have realized they can form a blocking stake that could force the company into offering better terms or risk liquidation.

"Coming together will put pressure on Perisai," said the investor, who declined to be identified other than by her first name Jennifer.

She invested about S$260,000 ($184,000) of a fortune she made in real estate into Perisai bonds, which are now quoted at 50 cents in the dollar but barely trade.

The investors last month rejected the company's request for a four-month extension of its S$125 million, 6.875 percent Oct. 3 bond on which Perisai defaulted.

The process is unique to Singapore's S$200 billion bond market, in which individual investors have bought about half of new issues since 2014. By contrast, European and U.S. bond markets are dominated by big institutions, such as pension funds, while individuals own an insignificant percentage.

"Investors have become cognizant that the defaults are not isolated cases, there could be more of them, and if they do not assert their rights their ultimate recovery in a restructuring could turn out to be far worse than if they did nothing," said Bank of Singapore's head of fixed income research Todd Schubert.

Increasingly aware that they have more power if they band together, individual Singaporean investors are flexing their muscles in the troubled offshore oil and gas sector in particular. It is widely expected to be the scene of further defaults.

Small and medium-sized companies tapped these investors for financing after commodity prices hit a peak in 2014, offering illiquid, high-yielding bonds with no credit rating at a time when commodity prices were starting to sink.

UPHILL TASK Bond investors in shipping trust Rickmers Maritime and rig chartering service provider Swissco Holdings Ltd are also teaming up, making it more difficult for the indebted companies to pursue restructuring plans.

Still, these investors do face an uphill task. Finding each other and negotiating a common position is difficult enough, but overcoming the financial illiteracy of some bondholders is also a big challenge.

"Many of the bondholders are ignorant. They don't even know that they need to vote," said CT Ong, a steel trading businessman who has spent about S$250,000 on Rickmers bonds.

Early efforts are encouraging. In Jennifer's case, two fellow bondholders helped translate some of the discussions in Mandarin Chinese, which she is more comfortable with than English. Another one invited her to a WhatsApp group of about 70 Perisai bondholders.

"So many things, I only learnt from the group chat," said Jennifer.

At least 30 Swissco bondholders meet nearly every week. At one meeting on Nov. 5, one investor peppered his calls for "unity" with bitter jokes about selling the bonds to company directors.

Swissco said it has facilitated three bondholders-only meetings.

Rickmers CEO Soeren Andersen told Reuters: "They are free to band together if that's what they think is best. I don't have an opinion about that." In a separate email, Rickmers said they also helped bondholders to connect. Perisai did not respond to requests for comment.

ACCREDITED

The pain is reminiscent of 2008 when thousands in the city-state faced hefty losses on structured products linked to the collapse of Lehman Brothers. (http://reut.rs/2ftAl3P) Back then, banks compensated retail investors either partially or in full. There is no sign of that happening this time.

The bondholders facing defaults have "accredited" status, which is reserved for individuals with net assets exceeding S$2 million. They have to declare their wealth and they formally acknowledge responsibility for their investments.

The realization that some of them have little understanding of what they owned has triggered some soul searching in Singapore, which owes some of its prosperity to the solid reputation of its wealth management industry.

Some investors said their private bankers had been overly optimistic about the safety of such bonds.

"On hindsight I could have asked a lot more questions, like why is the yield so high ... but the relationship manager sounded pretty confident," said Loh Hung Sing, a 64-year-old retired airline pilot, who holds S$250,000 of Rickmers bonds.

The banks themselves have taken a hit. Singapore's biggest lender, DBS Group , has reported its total bad debt charges doubled in the first nine months of the year to S$972 million, largely because of its lending to oil and gas firms such as Swiber Holdings , which is under judicial management. "Our relationship managers are focused on investor suitability and go through a robust process to ensure that our clients fully understand the product," a DBS spokesman said.The Monetary Authority of Singapore says financial institutions, including private banks, have to "act in the best interests of their clients as well as meet high standards of disclosure."

However, this cannot "replace the need for investors to take personal responsibility for their investments, taking into account their own investment objectives and risk tolerances," the MAS said.

The central bank plans tighter criteria for accredited investors, including disqualifying those whose wealth is concentrated in their home and who have few liquid assets otherwise.

(Reporting by Aradhana Aravindan, Saeed Azhar, Nicole Nee and Lee Chyen Yee; Editing by Marius Zaharia and Martin Howell)



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