The Government of Singapore chalked up a milestone on Thursday with the world’s first 50-year green bond sold by a sovereign, proving that duration is no barrier in the global funding march to greening the planet.
The Monetary Authority of Singapore acted as agent for the S$2.4bn (US$1.7bn) deal, which was priced at 98.976, for a yield of 3.04%, tightening from initial guidance of the 3.15% area thanks to cracking demand that was 2.26 times the S$2.35bn offered under the institutional tranche.
Another S$50m tranche of the 3% bonds is being offered to retail investors until August 10.
“The strong order book affirms investors’ confidence in the government’s plans to build green infrastructure for a financially and environmentally sustainable future,” said Leong Sing Chiong, MAS’s deputy managing director for markets and development.
Singapore pushed out its bond yield curve beyond 30 years with the inaugural issue off its S$35bn green issuance programme.
The curve extension is a bold step against a backdrop of global market volatility that has impeded the issuance of bonds since the beginning of the year. Although there has been a flight to safe havens, no sovereign had tested duration well beyond 30 years for a green note.
Prior to Singapore’s debut, the UK had the longest-dated green bond with its July 2053 Gilt. Germany has 2050 green Bunds and Poland 2049 green bonds. Of the three European sovereigns, only Germany is Triple A rated by all three international ratings agencies.
“Singapore is one of only nine sovereigns globally, and the only one in Asia, rated Triple A by all three rating agencies,” said Clifford Lee, DBS Bank’s global head of fixed income. “It will … open up the market there for further deepening of the SGD market to stretch the tenors and extend the SGD yield curve.”
Going green
The green debut reflects Singapore’s acknowledgment of the need for urgent action to counter the effects of climate change. The government in February committed to net zero emissions by or around 2050, a turnaround from an earlier pledge that targeted the second half of the century.
“The demand for green bonds is growing as global policymakers look for financing means to progress the sustainability agenda and environmental commitments” said a spokesperson for Manulife Investment Management.
“Singapore, for example, has announced plans to issue green bonds to finance green public infrastructure projects. These green bonds will be setting an example for its peers in the region, demonstrating how they could mitigate potential bond pricing challenges.”
The new bond will be issued under the Significant Infrastructure Government Loan Act 2021 (SINGA) which will encompass S$90bn in green and non-green infrastructure bonds, including transactions from statutory boards, over 15 years.
Under the SINGA cover, MAS has set strict conditions for eligible projects, which have to be owned and controlled by or on behalf of the government, with a project cost of a minimum S$4bn, with a long-term usage lifespan of at least 50 years and with a strategic importance to the development of the country.
“We believe that a series of evolving demand, supply, and structural factors are aligning that may mark the beginning of a wider holding of Singapore’s cash and bonds in the global financial stage,” said a DBS economic note on Thursday.
The central bank had earlier indicated it would look at tenors of either 30 or 50 years, but with market conditions looking benign it went with the longer duration. Prior to the green bond, the yield curve of Singapore government securities was only for up to 30 years. To date this year, the MAS had not auctioned any SGS beyond 10 years although a reopening of a 30-year bond is scheduled for late September.
In the Singapore dollar corporate bond market, only investment fund Temasek Holdings has sold a 50-year – a S$1.5bn 2.8% bond in August 2021 – while statutory board Land Transport Authority of Singapore has extended only as far as 40 years in a S$1.5bn 3.38% note in January 2019. Refinitiv data showed Temasek’s 2071s at 3.85% on August 4, while LTA’s 2059s were at 3.94%.
Pent-up demand
As such, there has been pent-up demand for long duration.
More than 75 accounts put in orders exceeding S$5.3bn, including S$430m of lead bank interest. As expected, insurers with a strong appetite for long-dated investments took the vast majority of the paper – 73% – but other investors dived in despite the duration. Fund managers and central banks took 11%, banks 15% and others 1%. Bankers following the deal said investors also included a good representation of green funds and foreign accounts.
The unrated SGX-listed bond was sold via a syndication or bookbuilding method. This is the first time that MAS has adopted this route against its usual auction route for SGS, mainly because the bookbuilding route gives it the flexibility to navigate market volatility.
“As the issuance parameters such as tenor and size are determined on the date the SGS bond is priced, syndication enhances the government’s ability to issue across varied market conditions,” said MAS in its August 1 announcement of the deal.
The green bond will be sold under the Singapore green bond framework, with the proceeds to be used to expand the electric rail network, particularly the Jurong Island MRT line and the Cross Island MRT line.
Project controversy
There has been controversy related to the Cross Island line which will run directly under Singapore’s largest nature reserve. Conservationists had voiced concerns over a stretch of the proposed line that would be tunnelled underneath the 2,000-hectare central catchment nature reserve which houses the last of the country’s dipterocarp primary forests and primary freshwater swamp forest. The reserve also shelters endangered flora and fauna.
The Land Transport Authority, which oversees the MRT development, has put in mitigation features to address concerns that the tunnelling would affect wildlife in the reserve. These include deeper tunnelling works – at 70m below ground through granite rock with no surface works to be done in the reserve.
Ultimately, the government says the MRT network supports its green plan 2030 which aims to achieve a 75% mass public transport modal share and reduce private transport, which will significantly contribute to its net-zero emission target.
"It will be vital to understand the impact of green projects on all material factors, not just specific KPIs," said Tom Mills, founder of Two Oceans Strategy sustainability consultancy. "As solutions to climate change move to be considered increasingly wider than emissions reduction, this will only be more and more essential."
DBS Bank, Deutsche Bank, HSBC, OCBC Bank and Standard Chartered were joint lead bookrunners for the deal which is slated to settle on August 15. DBS was also sole green structuring adviser and Sustainalytics provided a second-party opinion.
