Retail bonds appear to be catching the attention of the Singapore investor.
A retail bond can essentially be seen as a loan from an individual investor to a company. Typically, a bondholder gets paid a fixed interest rate over a fixed timeframe. The original capital loaned out will be returned by the company to the investor at the end of the bond’s tenure.
A recent report provided some insights to what is on the retail bond menu in Singapore. Here are some highlights from the report:
- Bonds are tabled with a board lot size of 1,000 units. The retail bond’s name contains information on the issuer’s name, the coupon rate, and the maturity date. For instance, CapMallTrb3.08%210220 would refer to CapitaLand Mall Trust (SGX: C38U) as the issuer, 3.08% as the coupon rate, and 20 February 2021 as the maturity date. For more on this retail bond, you can head here.
- The coupon rate is the annual interest rate to be paid. A 3% coupon rate would mean that a company is promising to make a $300 annual coupon payment for every $10,000 of bonds it can raise. This could be paid out annually or semi-annually.
- There have been three retail bond issues in the Singapore market in the last two months. The most recent issue is Hyflux Ltd’s (SGX: 600) perpetual securities. A total sum of $300 million was on offer. My colleague, Chong Ser Jing, shared his thoughts around this bond issue here. He had noted Hyflux’s chronic inability to generate cash flow as something for investors to watch.
- Another recent retail bond issue is from Aspial Corporation (SGX: A30). Here, Aspial is promising a higher yield of 5.3%. Yet, as my colleague Lawrence Nga points out, Aspial’s debt situation may be a cause for concern.
So, should gentlemen investors prefer bonds? Bonds represent another arrow in the investor’s quiver. Investors need to consider the company’s ability to sustain the coupon payment. In essence, if a company’s financials weaken to a point where it is not able to pay the coupon, the bondholder might be left high and dry.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.