On 19 May 2016, the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) issued new regulations and amended rules with the aim of facilitating bond offerings to retail investors. This update will focus on the changes to the requirements for issuer eligibility, bonds and bond issue and the trustee for the bonds. Changes made to the requirements for the Product Highlight Sheets and the Simplified Disclosure Document will not be discussed in this update.

Background

The two new frameworks were first consulted on by the MAS and the SGX in September 2014. Subsequently, the SGX consulted on the proposed requirements as to bond trustees on 23 December 2014, while the MAS consulted on draft legislation on the same day.

The MAS issued two new regulations: the Securities and Futures (Offers of Investments) (Exemption for Offers of Post-seasoning Debentures) Regulations 2016 and the Securities and Futures (Offers of Investments) (Exemption for Offers of Straight Debentures) Regulations 2016. Both came into effect on 19 May 2016. The SGX amended its Listing Rules with effect from the same date. The amendment included the insertion of a new Practice Note 3.2 on the Seasoning of Debt Securities.

The various amendments set up a regulatory framework for the seasoning of debt securities, whereby six months after the initial offer, the debt securities first issued to institutional investors, accredited investors and other relelvant persons may be resold in smaller tranches to retail investors and further debt securities may be offered to retail investors by the issuer. They also set up a regulatory framework for debt securities to be offered to retail investors without the issue of a prospectus, but only a Product Highlights Sheet and a Simplified Disclosure Document (the exempt bond issuer framework).

Eligibility Criteria

Corporations considering the use of the new frameworks should take note that the following clarifications were made to the eligibility criteria – comprising a size test, a listing test and a credit test:

• It was proposed that an issuer might meet the listing test if it has listed, or guaranteed the issuance of, bonds listed on the SGX for at least five years. The MAS has clarified that this test may satisfied if the issuer has multiple bonds that have in combination been listed for a minimum of five years, without any gaps over the period. The bonds need not be in the same series. In addition, of these multiple bonds, some may have been issued by the issuer and some may have been guaranteed by the issuer provided that, for those bonds that were guaranteed by the issuer, the bond was issued by a wholly-owned entity of the issuer. If the bonds to be issued are being guaranteed, either the issuer or the guarantor entity may fulfil this listing requirement, but it must do so on its own and not in combination with the other entity.
• One of the proposed alternative limbs of the credit test was that the issuer must have listed, or guaranteed the issuance of, bonds listed on the SGX of at least SGD500 million (or SGD1 billion for an issue under the exempt bond issuer framework) over the previous five years. As with the listing test, this has been amended to make it clear that it may be satisfied by multiple bonds in combination subject to the same restrictions. In addition, there must not have been a default under any of the bonds relied upon to satisfy this test.
• Another proposed alternative limb of the credit test was for the issuer to have a credit rating of BBB or higher, or the bonds to offered are rated BBB or higher, where the rating is done by an international credit rating agency (For an issue under the exempt bond issuer framework, the proposed minimum rating is AA-). The MAS has clarified that the issuer can rely on any current credit rating to satisfy this limb, but where there is more than one rating, all of them must be disclosed.

Bond and Bond Issue

As regards a bond issue, the MAS clarified that in calculating the aggregate amount of bonds offered through re-taps, the ceiling of 50% is to be based on the size of the initial offer of bonds to institutional and accredited investors without including the holdings of issue managers, underwriters and arrangers.

An amendment was also made to the early redemption of bonds. After feedback to the initial proposal, early redemption was permitted if issuers become obliged to pay additional taxes due to changes in the law or the application or interpretation of the law. Following further feedback, the MAS has also allowed early redemption in any of the following cases:

• the redemption of the debenture is for an amount equal to the sum of the accrued interest and the greater of the principal amount at par and a make-whole amount determined by discounting the principal amount and all remaining interest payments at a discount rate comprising a reference rate and a fixed spread specified in the debenture; or
• the debenture becomes redeemable upon the exercise of an option by the holder upon the occurrence of any of the following:
  • there is a change of control of, or a change of interests in, the offeror entity or, if relevant, the guarantor entity;
  • the shares in the offeror entity or, if relevant, the guarantor entity cease to be listed or traded on a securities exchange or overseas securities exchange; or
  • trading in the shares in the offeror entity or, if relevant, the guarantor entity on a securities exchange or overseas securities exchange is suspended for a continuous period which is longer than the period specified in the debenture.

Trustees

As noted above, the requirements for a trustee of debt securities were consulted upon by the SGX on 23 December 2014 as part of the review of the bond framework. The Listing Rules were revised with effect from 19 May 2016 pursuant to the consultation.

The SGX had initially proposed that the trust deed provide that the trustee must at all times exercise due diligence and vigilance in carrying out its functions and duties, and in safeguarding the rights and interests of the holders of the debt securities. This proposal will not be implemented. Instead, the SGX will require that the trust deed specifically set out the actions that the trustee will take in the event of a default or enforcement event. The SGX also rejected feedback suggesting that the trust deed be required to specify that trustees are to be indemnified, secured or prefunded by bond holders before acting. The SGX indicated that whether this was stipulated in the trust deed was a commercial rather than regulatory issue.

The SGX has codified its existing practice where issuers of retail debt securities announce the outcome of the offer and where appropriate, the level of subscription, the basis of allocation and allotment, and the subscription rate for the offer, prior to the listing of the debt securities.

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