Crowdfunding Fills Gap for Singapore's Small Cap Companies
Singapore. Metech International, an electronic-waste management company, is marketing a S$2 million ($1.4 million) crowdsourced bond, the first of its kind in Singapore.
The recycling company is selling so-called listed company, or listco, bonds on Singapore-based crowdfunding platform FundedHere, which is hosting the securities in collaboration with the Singapore Exchange and under licence from the Monetary Authority of Singapore.
The offer introduces an alternative to Singapore's much maligned high-yield bond market, where a series of recent defaults have spooked investors.
"Due to high operating costs, traditional financial institutions lack the incentive to lend to listed companies in relatively small amounts," said Nick Rademaker, marketing and strategy director of FundedHere.
"Listco bonds — which do not require a prospectus and can be crowdfunded in a transparent and cost-effective way — fill this funding gap by providing an alternative funding source for small to medium-sized listed companies that are struggling to raise money in today's sluggish macroeconomic environment."
Companies planning to issue in the new format must be listed on the SGX and have Singaporeans or Singapore permanent residents as majority owners. The bonds must have a lien on shareholder equity and a corporate guarantee, while companies must have positive net tangible assets and must not be on the SGX's watch list.
The bonds will be held with Singapore's Central Depository, and there will be a trustee to represent investors.
Issuers can sell up to S$5 million in listco bonds per year and do not need to file a prospectus. The bonds are denominated in units of S$50,000, rather than the typical S$250,000 in the wholesale bond market. Typically, campaigns run for 30-60 days and if the target size is not reached, no money is collected from investors.
Metech's proposed bond has a tenor of two years, and 50 percent of the principal will be repaid after one year. The issuer also has an option to redeem it in full after one year without paying a penalty.
The coupon rate is 8 percent and the penalty for late payment is 12 percent, applicable to the coupon and the principal. The largest shareholder, chairman Simon Eng, has pledged his shares as security against the bond. Metech has a market capitalization of S$12.7 million.
The maximum tenor for listco bonds is two years and the coupons can range from 6 to 9 percent. In addition, FundedHere charges issuers a fee of 1.5 percent per annum on the loan amount.
Metech's issue was around 75 percent covered as of the middle of last week, with around two weeks of the offer period still to run.
The general public cannot buy the bonds, as they are strictly for professional investors, including accredited ones. Accredited investors are individuals with net personal assets of at least S$2 million or annual income of at least S$300,000, or corporations with assets of at least S$10 million.
This group of investors have been active buyers of high-yield issues in the Singapore bond market, but the yields on offer from listco bonds far outstrip what they can earn in a public bond deal. The highest yield in the Singapore bond market this year is the 7 percent Lippo Malls Indonesia Trust paid for a perpetual non-call five note in September.
Listco bonds offer a new financing solution to Singapore companies, but look unlikely to cut into the market share of DCM houses.
"It fills a gap we wouldn't be able to cover," said a Singapore DCM banker. "It's small deal sizes, and for companies we don't cover. It means risky companies can get funding and we don't get complaints if the investment goes bad."
Its financial performance would probably result in Metech paying a higher interest rate than 8 percent in the public bond market, said the banker. The company posted a loss of S$7.1 million in the year ended June 30, an improvement from a loss of S$11.1 million in the previous 12 months. However, it registered a profit of S$147,000 after income tax in the quarter to September 30, signalling an upturn.
Metech harvests metal from electronic waste and trades it, but it has also expanded into supply chain management, trading third-party metals with big trading houses like Louis Dreyfus.
"The company is confident that the supply chain business will be able to give a return at least twice the coupon rate," said Metech in a filing to the SGX. The company said it was not confident of obtaining a loan from traditional lenders or raising equity, given its low share price and the depressed stock-market conditions.
Other Singapore platforms, such as Capital Match, Funding Societies, MoolahSense and New Union, have allowed investors to lend money to corporate issuers, typically start-up companies, but FundedHere is the first to market listco bonds. Other crowdsourcing platforms overseas have also experimented with bonds.
In 2014, London burrito restaurant Chilango sold a "mini-bond" on crowdsourcing platform Crowdcube. It raised £2.035 million (US$2.5 million) from a four-year bond at 8 percent, in an offering to 709 investors. Investors of more than £10,000 also received a free burrito per week for the life of the bond.
Reuters
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