Insurance scheme for Singapore bonds proposed

Additional protection for bondholders sought to lesson blow of bond defaults

Insurance scheme for Singapore bonds proposed

Insurance News

By Gabriel Olano

A spate of bond defaults in the troubled offshore and marine services sectors has led to the introduction of an insurance scheme for bond investors in Singapore.

Many bondholders in these sectors hit by defaults are individual investors, such as middle-aged Singaporeans looking to grow their retirement nest egg. They approached the Securities Investors' Association of Singapore (SIAS) for help, which proposed insurance as a way to cushion the blow of defaults.

The SIAS, together with Rajah & Tann law firm, has forwarded a proposal to the Monetary Authority of Singapore (MAS), requiring bond issuers to purchase an insurance policy at the time of issuance in order to protect investors in case of a default, reports the Business Times.

In case of a default, the insurance payout will be used to pay for calling meetings, as well as legal and advisory fees. These costs, which can range from SGD100,000 to SGD500,000, are usually shouldered by bondholders.

The call follows several bond defaults of offshore- and marine-services firms weakened by an extended commodity slump. This damaged the firms’ cash flow and the ability to pay their debts.

SIAS president David Gerald told BT: “Where can bondholders who are in distress get the money to cover their legal costs and so forth? They also have difficulties coming together with others in the same predicament. Their predicament is heightened as trustees of these bond issues are not able to assist them either.

“There has to be a mechanism through which retail bondholders won't be stranded in a default event.”

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