Rein in Asian trustees

Author: | Published: 15 Jul 2010

Recent bond defaults by Asian issuers have highlighted problems with trustees. In a number of cases, certain trustees have been reluctant, uncooperative or even obstructive when the bond investors – even a supermajority of bondholders – have tried to instruct a trustee to accelerate or otherwise take action in respect of their investment.

In some cases there were delays of up to three to five weeks before any action was taken by the trustee. This has raised a number of concerns among bondholders as to how their investments are structured at the outset, and whether some changes to traditional market practice are now warranted to address these concerns.

In a bond issuance, a company issues bonds to investors, either directly or through a special purpose company. If bonds are issued through a special purpose company, they will usually be guaranteed by the corporate parent. Bondholders appoint a trustee to, among...