OK, let’s just call this Perpetual Security “Perpetual Bond” in Singapore context, for the same purpose to call “mini-bond” a bond, for the same purpose to call “structured note” “structured deposit”, for the same purpose to “confuse the public”.
The surge of “perpetual bond” issuance in Singapore is just nuisance. More perpetual bonds were sold here in the first three months of this year than in the previous decade and a half. and Singapore is probably the only place where you can buy a perpetual security through an ATM with a press of a few buttons.
As recently reported in a Wall Street article “Brokers Offer Complex Securities to Growing Affluent Ranks”:
Across Asia, brokers are pushing to sell increasingly complex products to the region’s expanding ranks of investors, especially wealthy ones. These types of products appeal to those hungry for yield who normally focus on stocks and real estate but are worried about falling equity markets and the sudden shortage of initial public offerings.
The only people who really understand the product and the risk is the small group of product designers, and they don’t fully brief salespeople.
Though the unprecedented run of perpetual bond sales in Singapore has caught the attention of MAS, the regulator does not seem to intervene. In a response to Straits Times Forum letter “Perpetual securities: Alerts from MAS should be timely”, MAS merely said,
We agree with Mr Lawrence Loh and Mr Chrys Mendis that investors must ultimately take responsibility for their actions. However, we also do expect issuers and financial institutions that offer investment products to disclose the risks and features of products clearly to investors. This allows consumers to make informed financial decisions with a good understanding of their own risk appetite.
In the Business Times article “MAS ‘worried’ by perpetual bond rush”, MAS said, “the central bank’s scrutiny is preliminary, and there is no suggestion of any wrongdoing on the part of the banks or companies involved in the recent flurry of perpetual bond issues.”
This reminds me of Lehman Brother minibonds. Eventually, it will become another Caveat emptor (Buyer Beware) case again if things turn ugly. I am sure the financial institutions will be better prepared this time given the valuable experiences from the recent financial crisis.
How about individual investors? I guess history will repeat by itself.