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DBS, New World complete HK's first rate swap tied to UN sustainability goals

[HONG KONG] New World Development Company and DBS Group Holdings have completed Hong Kong's first interest rate swap linked to United Nations (UN) sustainable development goals.

The derivative transaction is designed to provide a hedge against interest rate risk related to the Hong Kong developer's HK$1 billion (S$172.6 million) five-year sustainability-linked loan from the Singapore bank, the companies said in a statement. That loan closed in November 2019.

Financial structures linked to sustainability are increasingly in the spotlight globally. The deals incentivise borrowers to meet certain sustainability targets, with borrowing costs increasing if they don't. Earlier this month, Singapore unveiled a programme to boost access to green and sustainability-linked loans.

Such structures aren't without skeptics. A new type of bond that penalises issuers for failing to meet social and environmental goals is raising concern among some investors in Japan that buying the debt may not be all that ethical.

New World is eligible to receive sponsorship from DBS to support social innovation projects if they successfully generate at least eight business-to-business integration opportunities that contribute to the UN goals, adopted in 2015.

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The deal also adds to a growing list of new ESG-related structures in Asia recently. Earlier this month, Goodman Interlink signed the Asia-Pacific region's first green interest-rate swap deal, totalling HK$590 million with Credit Agricole-CIB.

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