SGX should be worried. FundedHere plans to offer short-term bonds from listed firms, in addition to equity and debt crowdfunding. It may well be on its way to become another SGX, but for SMEs. It has several advantages – it is small and nimble. It also have a lighter regulatory regime to follow: short-term bonds below S$5m need no prospectus. In the meantime, SGX is probably still grappling with its recent service outage issue. Can SGX respond to the challenge or will it see its pie slowly eaten away?
FundedHere to offer short-term, high-yield bonds
FundedHere plans to offer short-term bonds from listed firms, Business Times reported today. Each bond will be less than S$5m and coupon rate of about 9% will be paid quarterly over the course of one to two years. Companies raising such bonds are not required to file prospectus with MAS. FundedHere plans to market each bond issuance to its accredited investor base, with a minimum subscription of S$50,000 each.
SGX should watch out!
If you think about these developments carefully, you will realize that FundedHere is fast becoming another SGX, but one for SMEs. It already has a CMS license and currently offers debt and equity crowdfunding for accredited investors. Both debt and equity crowdfunding are typically used by SMEs who may find it harder to access bank credit or capital markets. So, it is interesting to note that FundedHere is now targeting the smaller listed companies that are looking to raise up to S$5m quickly.
David versus Goliath
FundedHere may well have some serious advantage in this match-up. Being a small startup (but staffed with very experienced people), FundedHere can probably move faster than the lumbering SGX, which may still be struggling to get its service outages under control. Also, the platform can take advantage of crowdfunding regulation – specifically, the “small offers exemption” that allows companies that raises up to $5m to get away with filing a prospectus. Those who have worked in corporate finance before would know that not filing a prospectus is a really big deal. On the other hand SGX is not as well-positioned to pursue fund raising activities for smaller SMEs and could find it hard to defend its turf.
Are high-yield bonds from listcos safe?
The smaller listed companies will benefit from FundedHere’s recent initiatives. But what about investors? Are these no-prospectus, short-term, high-yield bonds safe to invest? According to FundedHere, these bonds are backed by a corporate guarantee (probably the listed company itself). FundedHere is also in discussions with an insurance agency to underwrite the bonds. But shareholders should pay special attention when companies issue such bonds. Because if the company ever has difficulty in repaying such bonds, it could issue new shares or rights (in the process putting shareholders at a severe disadvantage) to make good its debt.