Bond market is not necessary safe, potential huge loss by Swiber

Just 3 weeks ago, Colleague C was asking what would be a good and safe investment. Colleague E replied that he prefers bond when the market is in messy mode. Reported in Straits Times was about bondholders starting at huge losses due to troubles at Swiber Holdings. It has just filed a winding-up application, and its directors have resigned to pursue their own interests. This was unexpected because Swiber has been active the bond market and has launched 20 bond issues since 2008. Earlier, two other bond issuers; Trikomsel Oke and Pacific Andes Resources Development had also failed to make payments on their notes.

According to Mr Terence Lin, assistant director of bonds and portfolio management at fund researcher iFast, Swiber’s bonds were a risky bet. This was an issuers who was one of the heaviest borrowers in the offshore and marine industry. This industry is in a bad shape currently due to weak oil prices. The following are the banks who managed Swiber’s 20 issues. DBS has managed 12, along with banks such as ANZ, RHB, Citibank, HSBC, ICBC and OCBC. These bonds, which come with a minimum investment of around $250,000, are typically placed to institutional and sophisticated investors, including insurance firms, asset managers, corporates and high net-worth individuals.

It was also reported in the article also that bankers’ commission for the issues can be as high as 1 percent. With 4 – 6 percent yields, it is extremely attractive when compared to the current low deposit interest rates. Currently, Swiber has four outstanding Singdollar-denominated and one yuan-denominated bonds.Total amount for these amounted to $551.8 million. I have been investing in funds for the past 15 years. I seldom see bond funds as attractive and there were just one or two occasions that my fund manager changed my equity funds into bond funds. Moving forward perhaps even for bond funds we should find out where are these funds invested in and that potential for big losses, especially with extremely attractive returns when compared to the fixed deposit rates. Full article in straitstimes here.

written on 7 Aug 2016

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