On 1 September 2014, the Monetary Authority of Singapore (the “MAS”) issued a consultation paper (the “MAS Consultation Paper”) proposing measures to provide retail investors with greater access to bonds.
On the same day, the Singapore Exchange Limited (the “SGX”) separately released a consultation paper (the “SGX Consultation Paper”) proposing a Seasoning Framework under which retail investors can purchase bonds that were initially traded only by institutional and accredited investors (“Specified Investors”) through secondary trading on the Singapore Exchange Securities Trading Limited (the “SGX-ST”) after a six-month period (the “Seasoning Period”). The Seasoning Framework will be restricted to only plain vanilla bonds.
Issuers may also make subsequent offers of new bonds with the same terms as those that have undergone the Seasoning Period. The MAS proposes to grant a prospectus exemption for such a subsequent offer, or “re-tap”, of the initial offer.
Where an issuer is able to satisfy specified thresholds that are higher than the eligibility criteria for issuers under the Seasoning Framework, the MAS proposes to exempt such issuers (the “Exempt Bond Issuers”) from prospectus requirements for offers of plain vanilla bonds.
Both the MAS and SGX public consultations closed on 30 September 2014.
Scope of bonds under the proposals
The measures proposed by the MAS and SGX are designed to apply only to plain vanilla bonds. Plain vanilla bonds refer to bonds which:
- have a fixed term not exceeding 10 years;
- provide for repayment of the principal sum at the end of the fixed term;
- have periodic interest payments which cannot be deferred;
- carry a fixed interest rate or floating rate of interest comprised of a reference rate plus a fixed margin which cannot be decreased;
- are not convertible into or exchangeable for other securities;
- are not asset-backed securities or structured notes; and
- are unsubordinated.
The scope excludes convertible bonds, perpetual bonds and other hybrid instruments.
The SGX proposes a Seasoning Framework which provides retail investors with access to wholesale bonds listed on the SGX-ST after the Seasoning Period.
Wholesale bonds initially offered without a prospectus to Specified Investors in larger denominations of at least S$200,000 will be re-sized into smaller denomination and can be traded by retail investors in the smaller lot size (“Seasoned Bonds”) through secondary trading on the SGX-ST after the Seasoning Period. The Seasoning Framework will apply to issues of plain vanilla bonds with an initial minimum principal amount of S$300 million in the initial issuance to the Specified Investors.
Eligible issuers may make additional offers of new bonds to retail investors with the same terms as the Seasoned Bonds after the Seasoning Period. This subsequent issuance, or re-tap, can take place any time during the tenure of the Seasoned Bonds. The MAS proposes to grant a prospectus exemption for the re-tap, subject to specified conditions being satisfied. Issuers can invite subscriptions for the bonds offered during a re-tap through brokerage firms and via automated teller machines (“ATMs”).
Requirements for issuers under Seasoning Framework
The SGX Consultation Paper also details proposed requirements to be met by issuers under the Seasoning Framework.
Aside from having a proven compliance track record through debt listings on the SGX-ST or equity listings on the SGX-ST or recognised securities exchanges, the issuer must have issued securities which have gained traction with investors. Further, issuers have to satisfy specified requirements under the Size Test, Listing Test and Credit Test (“Seasoning Eligibility Criteria”), as outlined in the SGX Consultation Paper.
All three tests must be satisfied (i) at the time of application for listing of the debt securities; (ii) prior to trading of the seasoned issue on the Mainboard of the SGX-ST; and (iii) at the time each re-tap is made available to retail investors.
Specific disclosure requirements are also proposed for issuers in the case of a re-tap issue.
Prospectus exemption for Exempt Bond Issuers
Under the Seasoning Framework, retail investors would only be able to invest in bonds initially offered without a prospectus to Specified Investors through the secondary market or subsequent re-taps after the Seasoning Period. To give retail investors more opportunities to directly subscribe to bonds issued by issuers with a stronger credit profile, the MAS proposes to grant a prospectus exemption for Exempt Bond Issuers who meet a set of eligibility criteria comprising the Seasoning Eligibility Criteria, but with higher thresholds for the Credit Test. The bonds will be required to be listed and traded on the SGX-ST. Issuers can invite subscription for the bonds via ATMs or brokerage firms. The MAS also proposes some safeguards for the protection of retail investors.