Project Template Presentation

FIN3701B Case 3: Sembmarine and Keppel
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Table of Contents
1 Introduction 4 Household Debt Market
2 Government Debt Market 5 Trends and Challenges
3 Corporate Debt Market 6 Transformation of Debt Assets


Yi Xiang
Introduction to Debt Market
What is a Debt Market?
Debt market is where debt instruments are bought and sold by the following parties
Financial
Institutional
Intermediaries Vestibulum congue Government
Retail Investors
Investors
1. Government Debt
Government bills, notes, or bonds which entails borrowing of funds from its citizens to fund nation building
2. Corporate Debt
Issue debt as part of their capital structure to fund for further growth
3. Household Debt
Consumer debt & real estate mortgage loans
Introduction Government Debt Market Corporate Debt Market Household Debt Market Trends and Challenges Transformation of Debt Assets
The Need for Debt Market
Government Debt Corporate Debt Household Debt
Raises money through debt instruments to finance Requires funds to finance project and business Households typically lack the huge upfront capital
fiscal policies such as government expenditures developments to make full payments for big ticket items such as
houses or cars
China opened her economy in 1979 and used debt Raising equity might be more expensive as
to finance infrastructure expansion and loose compared to issuing debt because equity investor By obtaining loans, they could finance these
monetary policies typically demands higher return due to additional purchases through installments such as periodic
risk they are taking on payments over a period of time
Debt effectively reduce the WACC of a company

which is beneficial

Singapore’s Government Debt Market
Introduced in 1998
Monetary Authority of Singapore Singapore's Government Debt as of 2019 (S$ Billions)
SSB 4
MAS lead efforts to enhance the efficiency and liquidity of the
Singapore debt market to become a global debt centre T- Bills 10
In 2000, established SGS issuance programme which led to a SGS Bonds 119
greater issuance of the new SGS bonds which created large and
liquid benchmark of bonds SSGS 428
Singapore Constitution and Government Securities (SCGS) Act Total Singapore Government Borrowing 561
states that funds raised can only be invested in capital projects
that are expected to fetch sufficient profits that cover investment
costs
Rated AAA
Singapore’s Government Debt Market
Issuer of bonds in government debt Type of bonds issued
Central Bank
Statutory boards
Institutional Investors Retail Investors
1. SGS Bonds 1. SGS Bonds

2. T- Bills 2. T - Bills
3. MAS FRNs 3. SSB
4. CMTBs
Singapore Government Securities: Retail investors
SGS Bonds
SGS bonds have three distinct categories
1. SGS (Market Development) - Government Securities Act legislation which objective is to develop the domestic debt market
2. SGS (Infrastructure) - Significant Infrastructure Government Loan Act to finance long term infra projects
3. Green SGS (Infrastructure) - Significant Infrastructure Government Loan Act to finance long term green infra projects 2022
Features
● Typically sold for a tenor of 2, 5,10,15,20, or 30 years which are issued in SGD
● Individuals (including foreigners) aged 18 and above with minimum investment amount of $1000 and in multiples of $1000
● Sold through uniform price auction where it incorporates both competitive and non-competitive bids
● AAA rated but comes with certain risks such as interest rate risk
Singapore Government Securities: Retail investors
T-Bills -(Short term alternative)
1. Short term SGS bonds issued at a discount to their fair value, shorter term from 6 months or 1 year
2. Sold through an auction which comprises of competitive & non-competitive bids
3. No coupons are issued and the interest is paid at maturity (Zero-coupon bond)
Evaluation
● SSB is fully backed by the government which implies a very low

default risk
● Liquidity risk is not an issue because withdrawal of capital is
possible within a one month’s notice
● Might face potential maturity risk due to a longer time horizon
MAS Bills & MAS FRN: Institutional investors
MAS Bills
● Short term instrument that has tenors of 4 weeks and 12 weeks
● Issued at a discount to their face value and sold through uniform price auction consists of only competitive bids
afafafsf
● Exist to increase the pool of SGD-denominated government and central bank debt securities to meet bank’s regulatory need for high quality liquid
assets (HLQA)
MAS FRN
● Tenor of instruments are 6 months, 1 year, and 2 years which are relatively longer as compared to MAS bills
● Coupon payments semi-annual and is paid out on a floating rate based on a spread plus compounded SORA
● Sold through a uniform price auction consisting of competitive bids only
● Exist to give a longer alternative compared to MAS bills for institutional investors
Singapore’s Bond Market Performance
Singapore’s bond performance against peers
● Singapore bond ratings are among the world’s best

according to major agencies such as Fitch, Standard and
Poor, Moody’s
● AAA attributed to robust governance, strong economic

fundamentals, and stable political environment
● Singapore government bonds outperformed developed

markets and offer the highest yields amongst AAA rated
economies

Brief Overview of Corporate Debt Market
Overview of Singapore corporate debt market
Issuance of SGD denominated bonds in 2019 Overview and example of SGD denominated bonds
Type of issuers:
45.6% 31.7%
Corporate Issuers Financial Institutions
Example of SGD denominated bond:
Issuance of non-SGD denominated bonds in 2019 Issuance of non-SGD denominated bonds in 2019
Types of issuers:
Types of issuance:
11.9% 79.6%
Majority of foreign-denominated bonds come from USD issuances where
it accounts for 69.3% of total issuances of bonds.

Corporate Issuers Financial Institutions
Example of SGD denominated bond: Next, SGD-denominated bonds is smaller where it is 12.3%
Eg: BOC Aviation that had issued more than SGD 2.9 billion in foreign currencies
such as USD, AUD and HKD
Types of instruments in Corporate Debt Market
Various instrument types in Corporate Debt Market
Types of corporate
Commercial paper Medium-term notes Hybrid securities Corporate debentures Securitised debt securities
instruments
Mandatory convertible Infrastructure asset-backed

Examples of instruments Commercial paper Senior unsecured notes Bonds
bonds securities
$150 million commercial $6.2 billion mandatory US$361.1 million of

$300 million of 30-year
Specific examples paper issued by CGS- $500m note issued by SPH convertible bonds issued by investment-graded notes
bond issued by Keppel
CIMB Singapore Airlines supported by assets
(Short-term) (Medium-term) (Medium-term) (Long-term) (Long-term)

Ranging from 3 months to Ranging from 5 years to 10 Similar to medium-term Ranging from 10 years to Ranging from 10 years to
Tenure 1 year years notes where it ranges from perpetual perpetual
5 years to 10 years
Developments of SG’s corporate debt market
Digitalisation of Qualifying Debt Instruments (QDS) Scheme Asian Bond Grant Scheme
Overview of QDS Tax Incentive Scheme
Registered bonds under QDS would be
allowed for exemption
under the Income Tax Act.

Overview of Asian Bond Grant Scheme
Digitalisation of QDS enquiry

Launched in 2017 by MAS to boost the local bond market by supporting the Asian bond
MAS launched an online issuers in Singapore
repository in 2020 where What the scheme entails
searches can be performed First-time Asian bond issuers in Singapore would be eligible to co-share up to 50% of
bond issuance-related expenses
for debt securities
Cap of $400K for rated issuances
under the QDS scheme
Cap of $200k for non-rated issuances.
Risks faced by corporate debt holders
General Risks similar to other bonds like govt bonds Credit Risk
Similar Risks like other bonds Overview of credit risk
Interest rate risk Most corporate bonds not secured by collateral
Inflation risk Able to minimize credit risk by depending on credit ratings published by agencies
which measures the ability of whether a company will default
Liquidity risk
Call Risk Event Risk
Overview of call risk Overview of event risk
Unique to callable bonds where bond issuer can redeem the bond prior to maturity Risk that an unexpected event like corporate transaction or natural
disasters can cause the payment of coupons from bonds to be missed.
Issuer will redeem bonds when there is a fall in the market i/r
Issuers offer higher yields on callable bonds to compensate for this risk.

Overview of Singapore Household Debt Market
Overview of Household Debt Market
Comparison between SG and Malaysia Household Debt
Singapore Household Debt Market Malaysia Household Debt Market
Household debt to GDP ratio Household debt to GDP ratio
66.55% in Q2 2021 89.6% in Q2 2021
Total Debt Servicing Ratio (TSDR) Total Debt Servicing Ratio (TDSR).
Refers to the portion of a borrower’s gross monthly income that is used to fulfil For Malaysia, there is no compulsory TDSR.
debt obligations monthly.
However, 25% of households have a TDSR of above 60%
For Singapore, the mandatory debt servicing ratio is 60%.
Mortgage Servicing Ratio (MSR)
Mortgage Servicing Ratio (MSR)
For Malaysia, there is no compulsory MSR.
Refers to the portion of a borrower’s gross monthly income that goes towards
repaying all property loans However, the MSR for outstanding house loans is at 35%.
For Singapore, the mandatory mortgage servicing ratio is 30%.
Buy Now, Pay Later (BNPL) Framework
Overview of BNPL Framework
How does the scheme works?
It allows consumers to pay for their purchases via separate instalments over a period of time.
Value of BNPL as of end-2020
Transaction volume is $112 million which is much smaller compared to the $92 billion in credit and
debit card purchases over the same period
Features of BNPL that makes it attractive
Help to prevent consumers from accumulating excessive debt as payments are subject to credit limits
and are capped at a maximum amount
Enjoy greater protection on debt accumulation relative to credit cards bills as compounding interest is
not charged on outstanding amounts
Late payment fees are charged at a maximum amount which helps to prevent consumers from
accumulating too much debt

How the pandemic has
changed debt markets COVID-19
Decreasing Interest Rates... … coupled with Inflation
The Trend:
Supply-chain bottlenecks and changing product demand patterns are
leading to cost inflation.
The Effect:
Coupled with the decreasing interest rate, fluctuations in bond prices might occur.
Impact on Singapore:
Singapore’s inflation rates have been increasing. Uncertainty in bond pricing could
occur, and investors are exposed to more default risk due to the possibility of
unexpected events.
The Trend:
Decreasing interest rates across APAC as COVID19 causes a decrease in economic activity.
Central Banks lower their interest rates to encourage borrowing and stimulate investment
activity.
The Effect:
As interest rates decreases, bonds prices increase.
Impact on Singapore:
Singapore typically follows the Fed funds rate which are also on the decline. A hike is not
expected until 2023.
ESG: Environmental,
Socially responsible
investing Sustainability, and
(Corporate) Governance
Green Bonds and
Sustainability How
1. ESG metrics are set (used to measure the performance of a loan).
2. When targets are not reached a penalty in the form of a step-up in the bond/loan’s
Linked Loans they
Work interest or coupon rate may occur.
Drivers
1. Government policies
In the last decade, (a) governments worldwide have enacted over 500 new measures
to promote ESG issues + (b) Increasing support for green technologies and business
model innovations.
2. Shift in socially conscious investors

Gaining
86% of respondents believed companies embracing ESG practices may be more
profitable and better long-term investments.
traction
3. Evolving data and analytics
(a) Better data from businesses and

(b) increasing ESG research and analytics capabilities
→ Rise of systematic, quantitative, objective, and financially relevant approaches to
measuring ESG issues
Comparing Green Bonds and Sustainability Linked Loans
Green Bonds Sustainability Linked Loans
UsesUses of
of Proceeds Funding proceeds from the bonds are used strictly Not strictly for ‘green’ projects, can be used for general corporate
Proceeds for green projects or purposes under ESG purposes and working capital
Performance Not a requirement to have

Verification Independent verification is usually required
independent verification of performance
More financial restrictions and Less financial restrictions and

Regulations
disclosure requirements disclosure requirements
Growth of Singapore’s ESG Debt Market
Asia’s ESG Debt Market Sustainable Bond Grant Scheme
Total ESG bond issuances in

$69
Asia this year
bn
Asia’s ESG bond market has been growing tremendously in line

with the rise of 1. Encourage corporates’ ability to obtain green / sustainability linked loans
the global ESG bond market.
● Cover expenses incurred by corporates to engage in sustainability assessment and advisory
service
Singapore REITs and Property Trusts ● Defray up to $100,000 of the expenses per loan (3 year period)
1. Encourage banks to develop frameworks for green bonds / loans

$2 Total new / refinanced green and ● Cover sustainability assessment and advisory services used to develop frameworks
bn sustainability linked loans ● Defray up to 60% of the expenses, capped at $120,000 (3 year period)
As secured by Singapore REITs and property trusts (2021)
Green Bonds in Singapore
National Environment Agency (NEA) National University of Singapore (NUS)
Proceeds: Used to finance sustainable infrastructure development projects ● Under the Green Finance Framework, NUS raised $300m through its first
green bond (1.62% c.p.)
● Finance sustainable infrastructure

projects and energy related initiatives
● e.g. Campus-wide upgrading and
consolidation of district cooling
chillers, and investing in renewable
solar energy
e.g. Tuas Nexus Integrated Waste Management Facility (IWMF)
Greenwashing in sustainability linked loans
Low Bars Corporations exploiting sustainability-linked loans
Some companies just advertise that it is a sustainability linked loan

● Sustainability-linked loan issuance outpace that of green bonds
for its image but are probably not intending to hit the targets that
● Singapore: Setting up the Green Bonds Programme to develop a framework
they mention
Fintech’s role in
revolutionizing the bond Fintech
market
How debt market has been lacking behind equities market
Bond market size Reasons for the why debt is behind equities
Total bond capitalization $123.5T
However, the trend noted is that more investors are attracted to

the equities market. 1. Lack of price transparency
● 80% of all trades take place on a “request-for-quote” basis, where dealers are the one
quoting and selling the bonds.
How Fintech will be helpful
2. Highly illiquid
Fintech has allowed bonds to be more
● Operates mainly on a dealer-based system
accessible to investors through a lower ● Involves large capital.
investment amount. ● An example is the trading of corporate bonds, where issuances require a minimum
amount of $250,000 for the subscription of corporate bonds as opposed to equities
market which needs a minimum amount of $100.
Issuance of digital bonds under Bondblox
Overview of trading of digital bonds under BondBlox Benefits of digital bonds under BondBlox
● Increased liquidity
1. Open up bond market for issuers
Emergence of blockchain technology to allow for trading of digital bonds and investors
● Allows for the immediate transfers, settlement and clear discovery of bonds ● Investors requires only $1,000 to
2. Allows for a lower minimum
invest in digital bonds
within the exchange investment for investors
● Can buy bonds from multiple
● The distributed ledger technology allows for the immutable records of issuers instead of one bond from a
single issuer with the same amount
transactions that had taken place.
Prevalence of BondBlox for trading of digital ● Allows for transaction to be on a

3. Huge cost savings for issuers
single integrated value chain
bonds
● Allows for financial institutions to issue

● Allows for greater accountability of
digital bonds under BondBlox which is the 4. Allows for better security and
the digital bonds
tracking capabilities for issuers of
exchange for the trading of these digital digital bonds
bonds.
BondIT
Overview of BondIT Benefits of BondIT
Portfolio optimization for investors

Services that BondIT offers
● Offers data-driven construction, optimisation, re-balancing and monitoring
of fixed income portfolios where machine learning and data science
techniques are being employed
BondIT expansion towards Asia as a target market
● Majority of Asia investors in fixed income instruments are wealthy ● Algorithms had considered the analysis of relevant data such as liquidity data and
individuals interest rates
● Asian markets are receptive to implementing new technology in their ● Analysis of fixed income managers more accurate using quantitative data
various financial markets generated by the algorithm to make a more informed decision
● Reduced costs due to lesser time required by fixed income managers to make the
AGDelta (Joint Venture with BondIT)
appropriate recommendations for investors
● Established a Robo-assisted wealth platform

Functions of debt instruments in past and present
In the Past In the Present
However, debt instruments have been developed to meet the various

purposes of the market.
1. Catastrophe Bonds
Traditionally, the purpose of bonds in the past 2. Treasury Inflation-Protected Securities (TIPS)
was to fund wars.
Governments had also issued bonds to fund

government expenditure.
Catastrophe (CAT) Bonds
Event that triggered the creation Purpose of the instrument
Hurricane Andrew
● Natural disasters were mostly covered by insurance
● However, due to the insufficient resources and capital, it

had triggered the collapse of insurance companies Transferring Risk
● Protect the livelihoods of insurance companies

● Reduced the amount of payout by the insurance companies by raising
money for companies in the insurance industry in the event of natural
disaster.
TIPS
Event that triggered the creation Purpose of the instrument
Rising Inflation
Protection against inflation
● Since 1980s, there is a rise in inflation rate due to the ● Serve as a wealth protection instrument against inflation
growing demand
● TIPS had proven itself useful by beating inflation from over a time of 20
years from 1997 to 2017.
Increasing Prevalence of
other debt assets
Increasing Prevalence of other debt assets
Sukuks in Asian debt markets Infrastructure debt in Asian debt markets
● Islamic bond ● Strong economic growth , favourable macro and demographic themes, and
● Works similar to bonds that return interest as cash flows underserved existing infrastructure in Asia Pacific countries
● Allows issuers to tap on Islamic community for debt financing ● Asia Pacific seen as an attractive investment destination due to less competition
● Major issuers are Malaysia followed by Indonesia as majority of their as compared to developed markets of US and Europe
population are Muslims ● Sharp increase in international infrastructure investors in Asia over the past five
years
● Mezzanine debt investments have been made in transportation and renewable
energy sectors across various countries in Asia Pacific
● e.g. AMP Capital implemented its infrastructure debt Asia strategy in 2020 to
focus on mezzanine debt to complement its long-running global infrastructure
debt strategy
Increasing Prevalence of other debt assets
Benefits of having many debt assets Challenges of having many debt assets
Freedom of choice for investment selection Confusing for investors
● Face the problem of information overload

● Wide array of financial assets to choose from
● Different asset classes in debt market have different characteristics
● Allows investors to select assets that best suit their investment objectives
● Differentiation of securities can be extremely difficult
● e.g. Investors who want to preserve capital can choose to invest in treasury
● Face the problem of over-diversification (marginal cost is greater than
bonds and investors who want to minimise rate of losses can choose to
marginal benefit of having the new asset)
invest in uncorrelated industries
● Allows investors to diversify their investments to reduce unsystematic risk
Thank you
We welcome any questions ☺

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FIN3701B Case 3: Sembmarine and Keppel

1 Introduction 4 Household Debt Market

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

Debt effectively reduce the WACC of a company

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

1. SGS Bonds 1. SGS Bonds

SGS bonds have three distinct categories

2. Sold through an auction which comprises of competitive & non-competitive bids

● SSB is fully backed by the government which implies a very low

● Short term instrument that has tenors of 4 weeks and 12 weeks

● Sold through a uniform price auction consisting of competitive bids only

● Singapore bond ratings are among the world’s best

● AAA attributed to robust governance, strong economic

● Singapore government bonds outperformed developed

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

Corporate Issuers Financial Institutions

Example of SGD denominated bond:

it accounts for 69.3% of total issuances of bonds.

Mandatory convertible Infrastructure asset-backed

$150 million commercial $6.2 billion mandatory US$361.1 million of

(Short-term) (Medium-term) (Medium-term) (Long-term) (Long-term)

Overview of QDS Tax Incentive Scheme

Registered bonds under QDS would be

allowed for exemption

under the Income Tax Act.

Digitalisation of QDS enquiry

MAS launched an online issuers in Singapore

repository in 2020 where What the scheme entails

Similar Risks like other bonds Overview of credit risk

Interest rate risk Most corporate bonds not secured by collateral

Call Risk Event Risk

Overview of call risk Overview of event risk

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

Household debt to GDP ratio Household debt to GDP ratio

66.55% in Q2 2021 89.6% in Q2 2021

For Singapore, the mandatory mortgage servicing ratio is 30%.

How does the scheme works?

Value of BNPL as of end-2020

Features of BNPL that makes it attractive

2 Government Debt Market 5 Trends and Challenges

3 Corporate Debt Market 6 Transformation of Debt Assets

2. Shift in socially conscious investors

(a) Better data from businesses and

Green Bonds Sustainability Linked Loans

Performance Not a requirement to have

More financial restrictions and Less financial restrictions and

Total ESG bond issuances in

Asia’s ESG bond market has been growing tremendously in line

1. Encourage banks to develop frameworks for green bonds / loans

As secured by Singapore REITs and property trusts (2021)

● Finance sustainable infrastructure

e.g. Tuas Nexus Integrated Waste Management Facility (IWMF)

Some companies just advertise that it is a sustainability linked loan

Total bond capitalization $123.5T

However, the trend noted is that more investors are attracted to

Prevalence of BondBlox for trading of digital ● Allows for transaction to be on a

● Allows for financial institutions to issue

Portfolio optimization for investors