Singapore has one of the most developed and actively growing bond markets in Asia. The Singapore Corporate Debt Market Development 2018 published by the Monetary Authority of Singapore (MAS) reported that Singapore's total debt issuance reached SGD259 billion in 2017, achieving a 39% increase compared with SGD186 billion in 2016, with the majority of these issuances being non-SGD denominated.
The Singapore dollar bond market is comprised of Singapore government securities, quasi-government bonds, corporate bonds and structured securities. In Singapore, there is only one debt securities exchange, the Singapore Exchange Securities Trading Limited (SGX-ST).
Companies seeking to issue debt securities can list their debt securities in one of the SGX-ST's markets: the wholesale bond market or the retail bond market. Wholesale bonds are offered in larger denominations and are typically traded OTC after issuance. Further, wholesale bonds are offered solely to 'institutional investors' and 'sophisticated investors', as defined under the Securities and Futures Act (SFA). In contrast, retail bonds are offered to all investors and are usually traded on the exchange.
The Singapore bond market can be further categorised into the below types of offerings.
There are no commonly recognised bond indices in Singapore. Nonetheless, the ABF Singapore Bond Index Fund consists of bonds (denominated in Singapore dollar) issued by the Singapore government (as well as other Asian governments) or the government-linked entities of Singapore and is often used by investors to track the debt market's performance (ie, yield and volatility).
The main regulatory bodies in Singapore are the MAS and the SGX-ST. The MAS regulates the offering of debt securities and the SGX-ST looks after the listing and trading of the securities.
Applicants of a standalone debt offering shall lodge their application to the SGX, which acts on behalf of the MAS. Please refer to 6 Offering Documents for the content requirements of the offering documents.
An issuer can also make multiple offers of separate tranches of debentures under a debenture issuance programme, provided that it registers with the MAS a base prospectus that is applicable for the entire programme. For each subsequent offer of debentures under the programme, the issuer will only need to lodge with the MAS a brief pricing statement containing information specific to that particular offer. The base prospectus is valid for 24 months.
The key legislative instruments that govern debt listing in Singapore are:
There are different listing requirements for local and foreign debt securities (as set out below).
Listing Requirements for Local Debt Securities
One of the following requirements must be met for the listing of an issue of local debt securities.
In addition, the issuer is required to pay a listing fee of SGD15,000 and a process fee of SGD10,000.
Trustee and Trust Deed
The issuer must appoint a trustee to represent the holder of its debt securities listed on the SGX-ST, unless the offer is only made to sophisticated investors and traded in a minimum board lot size of SGD200,000 (or its equivalent in foreign currencies). The trustee must be a person satisfying one of the following requirements:
Further, the issuer shall ensure that it has no interest in or relation to the trustee that may conflict with the trustee’s role as trustee.
Listing Requirements for Foreign Debt Securities
A foreign company seeking to list an issue of foreign debt securities on the SGX-ST must comply with the listing requirements contained in Rule 304 of the SGX Listing Manual. The listing requirements are as follows.
There are no local currencies issuance restrictions. In particular, non-residents are free to issue Singapore dollar-denominated securities and to carry out transactions that are denominated in Singapore dollars. The only restriction is that the non-Singaporean financial institutions are required to convert their proceeds from Singapore dollars into foreign currencies when they repatriate it out of Singapore.
Other than Singapore dollars, debt securities in Singapore are commonly denominated in the G3 currencies; ie, the US dollar, euro and Japanese yen.
Listing a Debt Issuance Programme
Medium-term note (MTN) programmes are popular in Singapore and are issued frequently. MTNs are not offered on an underwritten basis. Instead, MTNs are offered continuously through dealers or agents on a best effort basis, which enables issuers to meet investors’ demand as it is established.
Under Section 309 of the SGX Listing Manual, in order to list an MTN programme on the SGX-ST, the principal amount of each listed series of the MTN Programme must be at least SGD5 million (or its equivalent in foreign currencies).
An issuer seeking listing on the SGX-ST should take the following steps:
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Primary issuance can be in the form of a public offering or a private placement. A public offering is the selling of registered securities to the broad market, rather than to a select group of investors. Public bond offerings are usually listed on a stock exchange in relatively small denominations and a prospectus is required to be lodged.
A private placement, on the other hand, is the selling of unregistered securities directly, where the offer is made to not more than 50 investors within a twelve-month period. Private bond placements are not listed on a stock exchange, do not require a prospectus and consequently cost less than a public offering.
There are three types of methods available for primary market placement:
Licensed securities dealers and exempt dealers (eg, banks and merchant banks) are permitted to engage in primary market transactions as agents of the issuer. Every public offering of securities requires a prospectus for offering unless it qualifies for one of the legally defined exemptions. Whenever such exemption is applicable, an information memorandum or a statement of material facts is to be issued. All issue managers are required to comply with the requirements in the laws and regulations (eg, the Banking Act, the Securities and Futures Act, and the Companies Act, and their corresponding regulations).
The most common issuance method for government bonds in the Singapore market is via auction. Singapore government securities are issued via auctions conducted by the MAS. Underwriters for corporate bonds typically conduct bookbuilding exercises for their issuers.
Fiscal Agency Structure
In this structure, the issuer designates a fiscal agent who acts on the issuer's behalf in liaising with the security holders. Nevertheless the fiscal agent does not owe a duty of care to the security holders. It should be noted that even though this structure exists, it is rarely used in Singapore.
Singapore's most common structure for the issuance of debt securities is the trust structure, in which the issuer designates a trustee to act on behalf of, and in the best interests of, the security holders. The trust structure allows the issuer to liaise directly with the trustee, instead of having to deal with numerous security holders.
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The steps of setting up a programme for the issuance of debt securities are similar to that of the standalone debt offerings as outlined above.
As discussed, upon the establishment of the programme, any subsequent offerings can be made by lodging a pricing supplement with the MAS.
An arranger/lead manager is:
A fiscal agent:
A principal paying agent is:
The key documents that are usually required in a debt issuance are the following.
All offers of debt securities must comply with the prospectus requirements set out in Chapter 289 of the SFA, unless the offer is excluded or exempted from the prospectus requirements. Debt securities that require a prospectus include debentures, bonds, notes and any other debt security, whether accrued by a charge on the assets of the issuer or not.
A prospectus is not required for debt securities (i) issued by an entity whose equity securities are listed on the SGX-ST. In this case, an offer information statement (OIS) is prepared, which must contain information as prescribed by the MAS (lenient requirements); or (ii) offered primarily to institutional investors and/or sophisticated investors. In this case, the information memorandum must contain the information that such investors customarily expect to see in these documents.
Main Content and Disclosure Requirement
The content requirements for a prospectus can be found in Section 243 of the SFA, the relevant schedule to the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 (SFR) and Chapter 6 of the SGX Listing Manual.
The prospectus must include, inter alia, the following information:
The content requirements for a prospectus are more rigorous than those required for an information memorandum. The prospectus must include more detailed information about the issuer and its management, the liquidity and capital resources of the issuer, background information and material disclosures on use of proceeds and information regarding material contracts.
An information memorandum typically contains the following information:
Liability for the Content of the Prospectus
Under Sections 253 and 254 of the SFA, civil and criminal liability for false or misleading statements in the prospectus can be attached to:
Content Requirements of Wholesale and Retail Issuances
In Singapore, the majority of offers of wholesale debt securities are not made under a prospectus but instead under Sections 274 and 275 of the SFA, which provide an exemption from the requirement to publish a prospectus. Consequently, the primary offering document that is used instead is an information memorandum.
Similarly, retail issuances are usually conducted or initiated by listed companies. Therefore, those issuances do not require a prospectus and are most commonly issued under Section 277 of the SFA, which provides that an offer information statement should be prepared.
In addition, corporate bonds (being plain vanilla bonds) meeting the eligibility criteria of the Bond Seasoning Framework and Exempt Bond Issuer Framework (introduced by the MAS in 2016) could be exempted from the need to publish a prospectus under the SFA for the offering in the retail bond market.
The prospectus must be signed by all directors, proposed directors or their authorised agents. The prospectus must be dated and no debentures can be issued in relation to a prospectus that has been issued more than six months before the issuance. Further, the prospectus must be registered with the MAS before it can be circulated and must be accompanied by a product highlights sheet.
The following principal terms and conditions of the issue must be disclosed in the public offer: issue price, redemption price, form, rate of interest, guarantees constituted in favour of the holders of the debt securities and maturity date. Further, the financial covenants of the issuer and the definition of events constituting events of default must be disclosed in the prospectus.
The prospectuses and offer information statements must first be lodged with the MAS through its online Offers and Prospectuses Electronic Repository and Access (OPERA) database for seven days before they can be listed on the SGX-ST. Once lodged, these prospectuses and offer information statements will remain on the OPERA and accessible to the public for a period of six months after registration. This requirement does not apply to simplified disclosure documents and information memorandums. Nevertheless, all offering documents, including simplified disclosure documents and information memorandums, are made publicly available on the SGX-ST.
The main exemptions to the prospectus requirement under the SFA are, inter alia:
Generally speaking, the same as having registered as a prospectus with the MAS, documents or materials in connection with the offer or sale or invitation for subscription or any shares or debentures or units in a BT may not be circulated or distributed, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
A bookbuilding process is used for corporate bonds. Some corporate bonds are offered through public offering/private placement. Underwriters of these corporate bonds may conduct the bookbuilding exercise.
On the other hand, government bonds are offered via auctions.
MTNs are usually offered continuously through agents or dealers on a best efforts rather than underwritten basis, allowing issuers to meet investors’ demand as it emerges. Therefore, it is common to have a best effort underwriting commitment.
The main terms of an underwriting agreement are the following:
In Singapore, price stabilisation of securities is prohibited and may violate Chapter 289 of the SFA, which includes provisions prohibiting false trading and market rigging, securities market manipulation and insider trading.
Exemptions to the prohibition of price stabilisation are provided under the Securities and Futures (Market Conduct) (Exemptions) Regulations 2006 (Market Conduct Regulations).
Market manipulation is prohibited in Singapore. The SFA sets out several conducts that are prohibited and that are construed as illegal market manipulation, such as:
Breach of the market manipulation prohibitions may result in criminal prosecution. The punishment for market manipulation is imprisonment for a maximum term of seven years, or a maximum fine of SGD250,000, or both. Corporations may also be convicted and punished by fines.
In addition, civil penalties can be imposed on the person and he will be exposed to civil liability for claims made by investors under the SFA.
There are no restrictions on the use of foreign governing laws.
This firm is not aware of such cases, other than those based on public policy or those that do not fall within the statutory schemes on the recognition of foreign judgments as set out below.
Foreign judgments are generally enforceable in Singapore. Notwithstanding, a foreign judgment may be void and unenforceable if it violates public policy. Also, a foreign judgment may be unrecognisable where it does not fit within one of the statutory or common law schemes of recognition. The statutory schemes are:
An arbitral award that is made in another country that is a signatory to the New York Convention on the Enforcement of Arbitral Awards (the New York Convention) is recognised by Section 30 of the International Arbitration Act (Chapter 143A). For awards made in another country that is not a signatory to the New York Convention, they may be enforced by, inter alia, an action commenced under the RECJA and the REFJA, and common law action commencing an action afresh in Singapore as a judgment debt.
Under common law, a foreign judgment will only be enforced if it is (i) for a fixed and ascertainable sum of money, (ii) from a court of competent jurisdiction (in the conflict of laws sense), and (iii) final and conclusive on the merits by the law of that country.
For the recognition of a foreign judgment, similar requirements must be satisfied, with the exception of the sum of money, which need not be fixed or ascertainable.
For the RECJA, the judgment must be issued by a superior court of the relevant jurisdictions for a sum of money payable. This also covers an arbitration award if such arbitration award can be enforceable as a judgment order made by the court of the relevant jurisdiction.
For the REFJA, the judgment must be issued by a superior court for a sum payable (excluding tax, fines or penalties). The judgment shall also be final and conclusive even if it may be subject to appeal.
Under the CCAA, courts in Singapore will enforce and recognise foreign judgments rendered in international cases where there is an exclusive choice of court agreement concluded in a commercial or civil matter. An 'international case' under the CCAA is prescribed as a case in which the claim is for recognition or recognition and enforcement of a foreign judgment; or the enforcement of a judicial settlement recorded before a court of a foreign state. A 'foreign judgment' is a judgment given by a court of a state that is a party to the Hague Convention of 30 June 2005 on Choice of Court Agreements, being a chosen court; or a court to which a chosen court has transferred the case. A 'judgment' is a final court decision on the merits, a consent order, a consent judgment or a judgment given by default.
For debt securities, while it is not registrable, common law requirements on assignment/notice should be complied with. For instance, for common law security over book-entry securities, the security grantor and the lender must each open a sub-account with the same depository agent. The grantor and the lender must then enter into a security agreement under the terms of which the grantor will charge in favour of, and assign to, the lender (i) all its right, title and interest in the sub-account maintained by it with the depository agent; and (ii) all the book-entry securities held in that sub-account.
Notice of that assignment must be given to, and acknowledged by, the depository agent
It is unlikely that bondholders domiciled in a foreign jurisdiction will be jeopardised. However, although individual aggrieved investors may bring claims (assuming sufficient jurisdiction), Singapore does not permit class action suits that may be permitted in many other worldwide jurisdictions.
This firm is not aware of such regulatory restrictions. It is also common for foreign entities to enter into bond transactions and offer debt securities in Singapore.
The timetable for issuing and listing debt securities relies upon several components. If the debt securities are being issued under an existing programme, the timetable is prone to be significantly shorter. Most of these issuances, commonly referred to as drawdowns, are completed within one to two weeks. In contrast, in retail or standalone issuances, the regulatory interference is greater and consequently the time is much longer.
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Bonds and other debt securities that are sold in the international markets are usually cleared through a clearing system. In general, debt securities are typically cleared through one of the following: Clearstream Banking SA, Euroclear Bank SA/NV, Central Moneymarkets Unit Service, and Société Anonyme (for investors outside the USA) and the Depository Trust & Clearing Corporation (DTC) (for US investors). In Singapore, debt securities that are denominated and issued in Singapore dollar are often cleared through CDP. Notwithstanding, debt securities can be denominated and issued in other foreign currencies (eg, US dollar, Chinese renminbi, Australian dollar, euro), subject to the issuer's choice.
Debt securities cleared via a clearing system are issued as a single note certificate, known as a 'global note'. The global note represents all the debt securities globally and is issued in the name of the common depository or the nominee. In situations where the note certificate is being held for or on behalf of the common depositary for clearing, principal amounts of the debt securities would be allocated to investors through their account held by the pertinent clearing system.
Delivery and exchange of the debt securities between account holders is facilitated electronically, which allows the free and easy transfer of interests in the debt securities, without the need of transferring any physical certificate, thus mitigating any potential risks stemming from non-concurrent transfers.
Each clearing system is limited to debt securities denominated in certain currencies. In Singapore, CDP supports Singapore dollars, US dollars, euros, Chinese renminbi, Australian dollars and Hong Kong dollars.
The main tax issues to consider are, inter alia, withholding tax, and goods and service tax (GST).
Payments of interest or principal are subject to withholding tax. The items below are deemed under the Income Tax Act to be income derived from Singapore.
The withholding tax rate is 15% for interest earned by non-Singapore tax residents not engaged in business in Singapore or not having a permanent establishment in Singapore.
There are certain exemptions and exclusions from Singapore withholding tax available on interest and related payments falling under Section 12(6) of the Income Tax Act, particularly the Qualifying Debt Securities (QDS) scheme.
The QDS Scheme
Under the QDS scheme, tax exemption (including withholding tax exemption) is granted on certain qualifying income (including interest) derived by investors who are non-resident holders of debt securities.
The main conditions for the above tax exemption are as follows.
The issue of the QDS must be arranged by certain financial institutions in Singapore that have been granted one of the following statuses:
The exact requirements depend on whether the QDS are issued under a programme or as a standalone issuance.
During the primary launch of the QDS (or a tranche of the QDS, in the case of a programme), the QDS are issued to four or more persons, or less than 50% of the principal amount of the QDS is beneficially held or funded, directly or indirectly, by related parties of the issuer.
The holder of the QDS is not resident in Singapore and either does not have a permanent establishment in Singapore or has a permanent establishment in Singapore but does not acquire the QDS using any funds from Singapore operations.
Payments of qualifying income under the QDS are not derived by any related parties of the issuer or any other person who acquired the QDS using funds from related parties of the issuer, if at any time during the life of the QDS, 50% or more of the QDS that are outstanding at any time during the life of their issue is beneficially held or funded by any related parties of the issuer.
The issuer has included in all offering documents certain statements relating to the QDS and a return on debt securities in respect of the QDS is submitted to the MAS within the prescribed time and in the prescribed form.
In addition, the QDS scheme grants companies or bodies of persons in Singapore a 10% concessionary tax rate on their qualifying income derived from the QDS, subject to meeting certain requirements that are broadly in line with the above.
Stamp duty is payable on the instrument of transfer of stocks or shares having a register kept in Singapore, at the rate of 0.2% based on the net asset value of such shares or consideration (whichever is higher). Thus, debt securities, save as being equity-linked, are not subject to stamp duty.
Stamp duty is also not applicable to electronic transfers of stocks or shares through CDP.
Singapore currently does not impose tax on capital gains. However, any gains derived by any person from the sale of debt securities that are gains from any trade, business, profession or vocation carried on by that person, if accruing in or derived from Singapore, may be taxable as such gains are considered revenue in nature.
Holders who are taxpayers and are required to comply with the Financial Reporting Standard (FRS) 39 – Financial Instruments: Recognition and Measurement for financial reporting purposes may be eligible for exemptions/tax treatment under Section 34A of the Income Tax Act, which provides for the tax treatment for financial instruments in accordance with the FRS 39 (subject to certain exceptions and 'opt-out' provisions). The Inland Revenue Authority of Singapore has also issued a circular entitled Income Tax Implications Arising from the Adoption of the FRS 39 – Financial Instruments: Recognition and Measurement.
Issuers with debt securities listed on the SGX-ST must comply with the continuing obligations set out in Part VII of Chapter 3 of the SGX Listing Manual. Generally, for the entire tenure of the debt securities, the issuer is obliged to disclose its annual report, and semi-annual and quarterly financials to the SGX-ST.
An issuer shall immediately disclose to the SGX-ST any information that may have a material effect on the price or value of its debt securities or on an investor's decision whether to trade in such debt securities.
Further, an issuer shall immediately announce the following:
Where a trustee was appointed and the issuer/guarantors have their equity securities listed on the SGX-ST, the issuer must announce its own and the guarantor's consolidated profit and loss account and balance sheet in accordance with the timelines prescribed in the SGX Listing Manual in relation to such equity securities.
Notwithstanding, the issuer does not need to announce the consolidated profit and loss account and balance sheet of any entity that is not an equity issuer (non-equity issuer) if the following cumulative conditions are met:
In a situation where the issuer/guarantors do not have their equity securities listed on the SGX-ST, a proposal needs to be submitted for the SGX-ST's approval of its proposed arrangements for the disclosure of their financial statements. The arrangements approved by the SGX-ST are to be disclosed through the offer documents.
Debt securities offered solely to institutional and sophisticated investors, and traded in a minimum board lot size of SGD200,000 (or its equivalent in foreign currencies) are not subject to the above-mentioned financial reporting obligations.
The continuing obligations apply to foreign and local companies that list debt securities on the SGX-ST.
The SGX-ST is empowered under the listing rules to deal with an issuer's non-compliance with the continuing obligations.
Contravention (whether it is unable or unwilling to comply) of the continuing obligations by the issuer could result in:
Singapore courts may also, on application by the MAS or the SGX-ST, make an order directing the person to comply with, observe, enforce or give effect to the listing rules.
Penalties Under the SFA
A breach of continuing obligations may attract criminal liability or civil penalties under the SFA. An issuer must not (whether intentionally, recklessly or negligently) fail to notify the SGX-ST of information that is required to be disclosed by the SGX-ST under the listing rules or any other requirement of the SGX-ST. An intentional or reckless contravention is an offence.
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