Singapore Private Bankers Wake Up to Junk Bond Risks as Cracks Emerge

Demand for higher returns in Singapore bonds from the city’s swelling private banking industry has brought with it greater risks. Three out of every 10 notes sold last year are yielding more than 6 percent. Halcyon Agri Corp. (HACL) went to debtholders last month asking them to waive interest cover requirements before it’s even had to stump up a coupon payment. Bloomberg’s default model shows that VTB Capital SA has an almost 50 percent chance of reneging on its debt. “The recent swings have been a good wake-up call,” said Vishal Goenka, the Singapore-based head of local currency trading in Asia for Deutsche Bank AG. “Investors need to analyze the credit quality of issuers more thoroughly.” Junk-rated companies in Singapore must find funds to repay $2.1 billion of debt this year, up from $1.7 billion in 2014 and $1.1 billion in 2013, according to data compiled by Bloomberg. That accounts for 35 percent of all bonds maturing in Singapore in 2015. Wealthy clients of the island’s private banks snapped up 86 percent of the highest-yielding local bonds last year, the data show. Historically considered one of Asia’s safest bond markets, risks are escalating as international issuers increase, local economic expansion slows and the city adjusts to weaker demand from a slowing Chinese economy. Singapore-dollar junk note returns lagged investment-grade debentures last quarter for the first time since September 2013, Markit Ltd. indexes show, and volatility is the highest since 2011, according to Deutsche Bank. To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Christopher Langner in Singapore at clangner@bloomberg.net

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