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Development of the Singapore Bond Market

Development of the Singapore Bond Market. Size of the combined Asian economies has overtaken US, and is projected to exceed Europe in 2011. Size of the combined Asian stock markets is comparable to the US and Europe.

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Development of the Singapore Bond Market

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  1. Development of theSingapore Bond Market

  2. Size of the combined Asian economies has overtaken US, and is projected to exceed Europe in 2011

  3. Size of the combined Asian stock markets is comparable to the US and Europe

  4. International debt securities Amounts Outstanding in Asia lag behind North America and Europe Source: Bank of International Settlements

  5. Singapore Bond Market Adapted from Asian Development Bank – Asian Bonds Online

  6. SGX Bonds Listings Source: SGX, as of 2 November 2009 (excludes bonds that have expired)

  7. Factors for a Successful Bond Market • Wide variety of international and domestic investors • Free mobility of capital and a stable exchange rate • Strong legal framework to protect investors in case of a credit event, credible rating agencies and good financial reporting practices • In the secondary market, transparency of prices, deep pool of liquidity and viable hedging instruments

  8. Measures to Develop the Bond Market • MAS initiatives since 1998 • Created credible benchmark curve • Encouraged trading in the repo market • Broadened the quasi-government bond sector • Liberalized SGD non-internationalization policy • Upgraded Central Depository capabilities for bonds • Increased price transparency in secondary market • Enhanced access for individual investors

  9. Main Challenges • Asian corporate culture, which has traditionally been about the comfort of a banking relationship and general distrust of capital markets • Lack of basic market infrastructure and absence of market-supporting institutions • Difficulty in overcoming inertial arising from being a relatively small market in the first place – larger investors gravitate towards larger markets

  10. End of Presentation

  11. Singapore’s income per capita is fast catching up with Europe and the US

  12. SGX Islamic Bond (Sukuk) Listing • Listed our first Sukuk (Ijara*) on 27 April 2007 • Issued by Malaysia’s largest lender Maybank • Offering Size: US$300mn subordinate certificates • Tenure: 10 years • Investor profile: 15% Islamic investors, 85% Asian investors • Joint Bookrunners and Lead Managers: Aseambankers, HSBC and UBS Why list on SGX? • Efficient approval process of 5 working days • Low cost of listing • Access to global investors • Tax exemption for investors on payouts received from Sukuks * Leaseback

  13. SGS Outstanding Source: Monetary Authority of Singapore

  14. Importance of Bond Market Reforms Survey of 45 market makers from ASEAN+3 nations on the importance of specific initiatives that could raise liquidity in local currency bond. Adapted from Asian Development Bank – Asian Bonds Online, The Market Maker’s View

  15. Measures to Develop Bond Market • Post-1998, MAS has been introducing measures to develop the bond market: • Creating a credible government benchmark yield curve by increasing issuance volume and regular auctions of longer-term (up to 15 years, was previously 7 years) SGS • Lifting size restrictions on repo trading and running a SGS repo facility for primary dealers to cover short positions in benchmark issues arising from market making • Broadening quasi-government bond sector by encouraging statutory boards to issue bonds • Liberalizing the SGD non-internationalization policy and allowing foreign entities to issue SGD-denominated bonds • Upgrading the bond clearing and settlement system of the Central Depository, thus enabling RTGS and full DvP for bonds • Launching an electronic OTC bond trading platform in conjunction with Bloomberg to increase price transparency and accessibility to different classes of investors • Increasing access to individual investors through various means

  16. Tax Incentives • Qualifying Debt Securities (QDS) • Debt securities substantially arranged by banks in Singapore - fee income earned by financial institutions are tax-exempt, interest and trading income taxed at 10% • Withholding tax exemptions for non-residents with permanent establishments in Singapore • Approved Bond Intermediary (ABI) Scheme • ABI status given to financial institutions with debt origination and capabilities in Singapore. All debt securities arranged by financial institutions with ABI status will be treated as QDS (see above) • Gains made from swaps trading taxed at 10%

  17. Improving Individual Access to SGS Source: Monetary Authority of Singapore Annual Report 2009

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