Monetary Authority of Singapore (MAS) logo signage on the building at entrance (Photo by mimisim from Shutterstock.com)

MAS on Hyflux debacle: We did our part but investors must exercise care

With more members of the public writing to ST Forum getting angry with MAS for perceivably not doing its job in regulating the issuance of Hyflux’s high risk bonds, MAS Director of Corporate Communications Jerome Lee gave a reply on ST Forum today (‘MAS has been doing its part but investors must exercise care‘,17 Apr).

Mr Lee acknowledged that MAS did introduce frameworks since 2016 to make it easier for eligible corporations to offer bonds to retail investors. “The retail bonds by Temasek and Singapore Airlines were issued under these frameworks,” he said.

But he added that when investors invest in bonds, they must exercise care as “the credit profiles of bond issuers can vary greatly”.

“Investors should look beyond yield or name-familiarity and seek to understand the issuer’s financial strength before committing to investments,” he said.

A member of the public had suggested that credit ratings be made mandatory for bonds issued to retail investors, since in the Hyflux case, its high risk bonds weren’t rated.

Mr Lee commented, “There are pros and cons to doing this (mandating credit ratings)”.

“One downside is that some issuers may choose to simply tap institutional investors; this limits the range of bond issues available to retail investors,” he pointed out. In other words, unrated bonds would not be available to retail investors if MAS mandates companies only offer credited ones to mom and pop investors.

“So, instead of making ratings mandatory, MAS introduced a grant scheme in 2017 to encourage and incentivise issuers to offer rated bonds. It is early days yet, but the scheme has attracted some interest,” he said.

“While perpetual securities and preference shares offer investors less protection than bonds in a liquidation scenario, they rank above ordinary shares which retail investors can freely invest in. Restricting them would limit the choice available to retail investors and cause unintended effects – for example, an investor may choose to invest in equities instead and take on even more risk.”

But Mr Lee seems to miss the point that brought up by many public members that perpetual securities are “hiding” under the umbrella of “bonds” when they behave more like equities, giving a false sense of security to mom and pop investors.

Mr Lee continued, “Ultimately, the best way to help investors is to enable them to make informed investment decisions by requiring issuers to disclose material information.”

He said that MAS requires issuers to set out clearly in their offering documents their financial position and prospects as well as key risks and salient terms of the instruments offered.

“In addition, to help investors better understand disclosures, MAS has required issuers to furnish in a product highlight sheet (PHS) a summary of key information in easy-to-understand language,” he said.