Singapore prices inaugural S$2.4b of 50-year sovereign green bonds to yield 3.04%
Janice Lim
SINGAPORE received strong demand for its inaugural offer of green bonds, allowing the sovereign issuer to reach or surpass pricing indications.
The 50-year bonds were priced to yield 3.04 per cent on Thursday, about 11 basis points tighter than price talk of about 3.15 per cent. The offering will comprise S$2.4 billion of bonds — the maximum of the S$1.9 billion to S$2.4 billion range provided by the Monetary Authority of Singapore (MAS) — on the back of a S$5.3 billion order book. The bookrunners are DBS, Deutsche Bank, HSBC, OCBC and Standard Chartered.
MAS said the bonds were placed with “a diverse mix of high-quality institutions”.
“The strong orderbook affirms investors’ confidence in the government’s plans to build green infrastructure for a financially and environmentally sustainable future,” MAS deputy managing director for markets and development Leong Sing Chiong said in a statement. “In addition, the extension of the sovereign yield curve to 50 years will further develop the Singapore Dollar bond market and support longer-tenor corporate issuances.”
The effective yield of 3.04 per cent reflects a coupon of 3 per cent and an offering price of S$98.976 per S$100 in principal value. The offer amount includes S$50 million of bonds that will be set aside for the public, which can begin to apply for the bonds from 9am on Aug 5 to noon on Aug 10. The remainder of the bonds will be placed with institutional and other investors. MAS may reallocate unsold bonds from the public offer to the placement tranche.
Besides being the first sovereign green bonds issued by Singapore, the offering also set a precedent as the first 50-year Singapore Government Securities (SGS) with a maturity that falls on Aug 1, 2072. The previous longest tenor for an SGS was 30 years.
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Clifford Lee, global head of fixed income at DBS, noted that the new notes would be the longest-dated green bonds ever issued by any sovereign globally. That ability to borrow at such long maturities reflected the country’s credit strength, he explained, highlighting that Singapore is 1 out of only 9 sovereigns globally, and the only 1 in Asia, that has been rated AAA by all three ratings agencies.
Sovereign bonds are often used in bond markets to provide pricing benchmarks from which yields are determined for other debt instruments. Having a 50-year yield will therefore give the Singapore-dollar bond market a new data point for pricing longer-term debt.
“It will test the depth of the investor base for such long-dated Singdollar bonds and open up the market for further deepening of the Singdollar bond market to stretch the tenors and extend the Singdollar bond yield curve,” Lee said.
Wong Tze Hong, director of bonds portal Bondsupermart, said pricing indicated “very strong demand” from institutional investors, which allowed MAS to reduce the yield on the bonds from marketing guidance.
One reason for the strong demand for the bonds could be due to the lack of alternatives in the market for institutional investors, he said. The only other Singapore-dollar denominated bond with a tenor of 50 years in the market is issued by state investor Temasek, which priced S$1.5 billion worth of bonds at a 2.8 per cent yield in Aug 2021. The bond had an indicative bid yield of about 3.8 per cent on Bondsupermart late Thursday.
Jerome Tay, investment analyst for fixed income at asset manager abrdn, said that the extension of the yield curve could make it easier for corporates or quasi-sovereigns to issue long-dated bonds.
However, Maybank Securities’ head of fixed-income research Winson Phoon pointed out that Temasek and the Land Transport Authority were already able to price bonds with a maturity period beyond 30 years. The transport agency had sold S$1.4 billion worth of 35-year bonds in May 2019.
“The price discovery for quasi-sovereign bond pricing was working just fine without the 50-year SGS as a reference point,” Phoon said.
With a rising rate environment, bond yields have gone up and are looking attractive for investors. Tay noted that the market has already priced in further rate hikes at least until the end of this year, regardless of whether policymakers are able to tighten monetary policy that leads to a soft landing in the event of an recession.
“I’ll argue that if recession does happen, policymakers will eventually have to stimulate the economy again, and that will be positive for bonds,” he added.
While inflation still remains a key risk, Phoon thinks that the market appetite for duration has been improving gradually amid growing concerns about a recession in the United States.
Besides the green SGS coming with a 50-year yield, pricing is also being set by syndication for the first time, a process that provides some flexibility for the timing of pricing. Previous Singapore government bonds were priced via auctions that followed a strict calendar.
A key aspect of the green label for these green bonds is that proceeds will be used to finance expenditures in support of the Singapore Green Plan 2030, including 2 new MRT lines — the Jurong Region Line and the Cross Island Line.
These are the first in a series of expected sovereign green bonds issued under the Singapore Green Bond framework. The Singapore government has indicated a pipeline of up to S$35 billion of sovereign and public sector green bonds that will be issued by 2030.
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