Australian Banks, Advisors, and Issuers should be concerned after recent events in Singapore. The Monetary Authority of Singapore (MAS) is reviewing the regulatory limits and practices as to what qualifies as the Singaporean equivalent of a Sophisticated Investor. The regulatory shake-up is all to do with the following equation;

(Accredited Investors + Private Banks) x Oil related defaults = Regulatory change

In 2014, Singaporean Private banks had sold Accredited Investors (AIs) bonds in small to medium sized companies with vulnerability to changing commodity prices (namely oil). Most of these have either defaulted or trading significantly below their $100 issue price. The MAS reports that almost half of Singpore bond purchases in 2014 were done by the private banking clients.

Swiber Holdings (an oil rig manufacturer), declared bankruptcy in July. Defaults from Swiber and other issuers in recent months now amount to losses of around $1b. Swiber’s case is more disturbing though, as an unusually higher proportion of their bonds were sold to “wealthy” Singaporeans.

When $250k = $500k

A Bloomberg article reports that the “wealthy” aren’t so wealthy. Rather they just met a monetary test which automatically categorised them as AIs. The article uses the example of Elaine Tham setting aside money for her children’s education, and investing her savings of S$250,000 into Swiber bonds. The $250,000 Singaporean is akin to our $500,000 Australian minimum investment to meet our Sophisticated or Wholesale investor test.

The MAS has responded by proposing changes to the law, and allowing investors to “opt-in” or “opt-out” of AI treatment. If they “opt-out”, then the investor is afforded FOFA-like investor protections and disclosures.

Issuers be warned

If you think Singaporean bond are naïve and therefore can be taken advantage of… think again. Ironically as some of these companies try to change the terms of their obligations, having a large investor base has been to their detriment. Rickmers Maritime found this out the hard way when their investors blocked restructuring plans.

Regulators on watch

The MAS is tightening up disclosures, practices, and how investors qualify as Accredited Investors. It’s not a stretch for Australian regulators and lawmakers to consider something similar.