World's first listed social bond draws private banking clients

Singapore

SINGAPORE'S budding market for social and sustainability bonds took another step forward on Thursday with an US$8 million issuance of 5.65 per cent four-year Women's Livelihood Bonds by Impact Investment Exchange (IIX) to be listed on the Singapore Exchange (SGX).

This is believed to be the world's first social sustainability bond listed on a stock exchange, with robust take-up among private banking clients.

The Women's Livelihood Bonds work by pooling the financing needs of a group of "impact enterprises", whose activities benefit women, into a special purpose vehicle.

The vehicle on-lends the proceeds from the bonds to those enterprises and charges them interest. The interest payments fund the coupon payments to bondholders.

If any of the enterprises defaults, IIX is providing US$500,000 of first-loss capital, while the US Agency for International Development is guaranteeing 50 per cent of the principal amount.

IIX also performs due diligence on the borrowing enterprises, and its knowledge of the enterprises and market data accumulated after nine years in the field helps to determine a fair coupon rate.

Listing on an exchange also provides transparency as the issuer will have to issue regular reports.

"The infrastructure for social capital markets is now taking off," IIX founder Durreen Shahnaz said. "This transaction brings us one step closer to a day when our financial markets consider social and environmental impact on an equal footing with financial returns."

Hogan Lovells Lee & Lee partner Andy Ferris called the process of working on the deal "interesting, challenging and rewarding".

"As the bond issuer relies on the loan repayments to pay out under the bonds, the structure needed to address what might happen if, for example, a delay occurs in receiving those payments," he said.

"The parties were keen to ensure that such events wouldn't unnecessarily collapse the structure, hence the manner in which the bonds were drafted."

DBS head of fixed income Clifford Lee said that there was positive response for the product, and most investors saw it as a way to do good rather than make money.

Having said that, the hope is to build enough rigour in the debut issuance to establish a template for a self-sustaining system of fundraising for social causes.

"It's important that this one is done well, the coupons are paid, the principal is repaid et cetera " Mr Lee said. "That will lend confidence to more being done, especially in Asia where this concept of a social impact bond is still quite new . . . The intent is to try to make this a cookie cutter in as many areas as possible for it to be replicated."

The Women's Livelihood Bonds come three months after City Developments (CDL) issued Singapore's first Green Bonds, and marks a nascent but growing area of finance.

The Singapore government is supporting that trend, with a grant for Green Bonds in place since June 1 to help offset fees and costs associated with raising such financing. The Green Bond Grant scheme will last until May 2020.