* MAS meets players to push for ratings
* Options to encouragage rating being explored
* Bankers resist ratings
By Kit Yin Boey
June 27 (IFR) - Singapore's capital markets are set for more
rated bond issues as the city's regulator considers ways to
promote transparency and deepen the business.
The Monetary Authority of Singapore has raised the issue in
recent discussions with market participants, according to
Although there is no suggestion that ratings will be
compulsory, the discussions point to regulators' concerns that
the prevalence of unrated debt is decreasing transparency and
"The central bank is working with the industry to encourage
ratings of corporate debt, but that does not mean or end in a
mandatory requirement," said one source closely following the
"The key word here is 'encourage'. Ultimately, it is up to
the issuers to decide if they want to get rated or not."
Singapore has considered a rating requirement for corporate
bonds to help protect investors in the past, but bankers and
issuers have strongly resisted such proposals.
Local investors have been happy to buy unrated bonds on the
strength of a company's brand or its government links, while the
unrated format saves issuers transaction costs, helping attract
some smaller companies to the capital markets.
However, the looming introduction of global capital and
liquidity standards for insurance companies has prompted the MAS
to revisit the contentious issue.
At the moment, unrated bonds attract the same risk charges
as non-investment grade debt under the risk-based capital
framework for insurers. Insurance fund managers have asked the
MAS to reconsider that rule, which they say will stop them from
buying bonds from financially strong issuers.
Singapore's insurers hold about 20% of the city's stock of
corporate bonds, mostly in the form of unrated securities from
government-linked companies and statutory boards. Housing and
Development Board, the largest local issuer other than the
government, has no rating.
The regulator believes the wider use of credit ratings will
help soften the impact of new capital rules for the insurance
sector, while enhancing corporate disclosure and transparency to
benefit other investors ultimately.
Bankers, however, are worried that regulatory pressure to
get a rating will stop some companies from coming to market.
Small-cap issuers have been especially active in the bond market
in recent months.
"A number of Singapore issuers enjoy brand and name
recognition, which keeps their bond yields low, but they fear
that they may get a lower rating and that will increase their
funding costs," said one credit analyst.
In a similar vein, larger companies are also reluctant to be
"If the issuers think that rating cost will add to their
overall cost, they can simply turn back to the loans market,"
said a head of DCM origination. "MAS has to come out with some
incentives, tax breaks, for instance, to offset the additional
Rating agencies, however, argue that the benefits of a
rating often outweigh the cost.
"The cost of obtaining a rating is not a key concern for
most issuers. It's being ready and willing to go through the
rating process and the market discipline that comes with it.
Rated issues in most developed markets have saved issuers as
much as 50bp," said Surinder Kathpalia, managing director, head
of ASEAN and South Asia at Standard & Poor's.
"Ratings enhance transparency in the marketplace, provide a
useful benchmark for credit differentiation and may provide
issuers access to a wider investor base," said Kathpalia. "That
wider investor base can often be helpful in tighter pricing that
some issuers seek."
Unlike other ASEAN countries, Singapore has no requirement
for bond issues to be rated. Thailand and Malaysia, for example,
insist on credit ratings to increase disclosure in order to
protect investors. Both countries, however, are gradually moving
away from the mandatory rating rule.
Malaysia recently announced that it would allow unrated
bonds to trade from 2017 to broaden the market and attract
retail investors. Thailand is also moving in that direction,
after the central bank noted strong demand for two unrated
sovereign issues from neighbouring Laos.
The push for more rated offerings in Singapore appears to
come from foreign banks and investors. There are a number of
rated issuers in the city state, most of them being the REITs
and the larger corporations, as well as some government-linked
"We are encouraging the statutory boards to get rated, and
that will help expand the investor base in Singapore to an
international audience," said one buy-side investor. "I know the
local investors don't care for the ratings, but it will help
build up the base. Otherwise, the local base will just not
HDB may be an obvious candidate to benefit from a rating.
The need to fund an expansion of public housing has forced it to
increase yields to attract buyers already quite full on its
paper. Foreign bankers have argued that a rating will allow
global investors to buy the paper, considered as a proxy for the
Ultimately, investors cannot assume more ratings will reduce
the chances of a default. "In the end, ratings are not a
substitute for investors doing their own homework," said
(Reporting By Kit Yin Boey; editing by Steve Garton)