There are a couple of bonds and preference shares listed on the Singapore Exchange (SGX). Due to their scarcity, it is rare to find discussions on how these should be selected for investment. Last Christmas, I had the opportunity to reread the Security Analysis, written by Benjamin Graham and David Dodd. In it, there are 2 sections devoted to how bonds and preference shares should be selected for investment. It listed 2 criteria, namely, the minimum average earnings coverage and the minimum current stock value ratio.

The minimum average earnings coverage ensures that earnings are more than adequate to cover the fixed charges from bonds and preference shares for a sufficiently long period of time. The minimum current stock value ratio ensures that there is a sufficiently large pool of shares to cushion the bonds and preference shares in the event of financial distress. The values for the 2 criteria …