The Monetary Authority of Singapore (MAS) has launched two new regulations aimed at making it easier for retail investors – individuals who purchase securities for personal investment purposes – to participate in corporate bond offerings. These changes are part of MAS’s broader strategy to expand retail investors’ investment choices by providing access to simpler, lower-risk investment products.

Corporate issuers typically rely on the wholesale bond market for funding due to the higher expenses associated with reaching retail investors. Starting today, corporate issuers will have a more streamlined and cost-effective way to access the retail market by issuing straightforward bonds through two new frameworks.

The first, known as the Bond Seasoning Framework, allows wholesale bonds* issued by eligible issuers (as determined by the Singapore Exchange (SGX)) to be offered to retail investors after a six-month listing period on SGX. These “seasoned” bonds can be divided into smaller denominations and made available to retail investors on the secondary market. Eligible issuers can also offer additional bonds to retail investors under the same terms as the “seasoned” bonds without issuing a prospectus. SGX has updated its rules to implement the framework and has published a practice note outlining the relevant procedures for issuers**.

The second, called the Exempt Bond Issuer Framework, enables issuers meeting specific criteria – more stringent than the Bond Seasoning Framework criteria*** – to offer bonds directly to retail investors from the outset of an offer without a prospectus. These new regulations implement policy and legislative proposals that were open for public consultation in September 2014 (Bond Seasoning Framework) and December 2014 (Exempt Bond Issuer Framework).

To further incentivize eligible issuers under both frameworks, the Minister for Finance will introduce a tax deduction of up to two times for qualifying retail bond issuers, covering issuance costs linked to these retail bonds. This tax incentive will be effective for five years, starting today. The MAS has also released a circular providing more details about the tax concession.

On September 1, 2014, MAS issued a consultation paper proposing regulatory changes for bond offerings to enhance retail investor access to bonds.

On December 23, 2014, MAS published its response to the feedback received on the consultation paper and released a second consultation paper seeking feedback on the draft regulations designed to implement the proposed regulatory changes.

MAS has since published its response to the feedback on the second consultation paper, which also summarizes the eligibility criteria for both frameworks, the conditions for prospectus exemptions, and the regulations related to the two new frameworks.

Interested?

Download Eligibility Criteria under the Seasoning Framework and the Exempt Bond Issuer Framework (PDF)

*Wholesale bonds are bonds offered solely to institutional and accredited investors or in denominations of at least S$200,000. These offerings are exempt from prospectus requirements under sections 274 and 275 of the Securities and Futures Act (Cap 289).

**References at http://www.sgx.com/wps/portal/sgxweb/home/regulation/consult_pub/consult_papers and http://rulebook.sgx.com/.

***For instance, under the Bond Seasoning Framework, an issuer can meet the credit standing criteria if it has issued or guaranteed the issuance of bonds listed on SGX totaling at least S$500 million (or its equivalent in foreign currency) over the preceding five years. In contrast, the threshold under the Exempt Bond Issuer Framework is S$1 billion (or its foreign currency equivalent).