Singapore prices S$2.8 billion of 50-year sovereign green bonds at 3.04%

SINGAPORE’s second offer of its sovereign green bonds have been well received by investors, once again surpassing pricing indications.

The 50-year bonds, officially called Green Singapore Government Securities (Infrastructure), have been priced to yield 3.04 per cent on Thursday (Aug 24) – about 11 basis points lower than the initial price guidance of 3.15 per cent, which was considered “a significant tightening” by the Monetary Authority of Singapore (MAS).

The offering comprises S$2.8 billion of bonds, on the back of a S$3.9 billion order book. The offer amount includes S$50 million of bonds that will be set aside for retail investors, who can begin to apply for them between 9 am on Aug 25 and 12 pm on Aug 29.

The effective yield of 3.04 per cent reflects a coupon of 3 per cent and an offering price of S$99.26 per S$100 in principal value.

“A diverse mix of high-quality institutions invested in the bonds,” said MAS in a notice on Thursday.

According to deal statistics seen by The Business Times on Friday, orders were from 40 investors, with the majority from insurance companies (69 per cent). Banks made up 20 per cent of orders, while the rest were from fund managers.

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The tighter final pricing is a reflection of the Singapore government’s credibility among investors, said Jerome Tay, fixed income analyst at Abrdn.

The final yield is the same as the bonds’ inaugural issuance of S$2.4 billion in August last year. They were also priced to yield 3.04 per cent, lower than the initial price guidance of 3.15 per cent.

However, with an order book 1.43 times the amount offered to institutional investors, the bonds were not as highly subscribed this time as the inaugural issuance, which had subscriptions 2.26 times the offer amount.

For one, investors interested in the sovereign green bonds would likely have participated last year, said Tay. 

Furthermore, unlike the issuance last year, when the yield from long-tenor bonds was higher than that for short-term bonds, the yield curve this year has inverted. This means that the yield of 3.04 per cent, though the same as for last year’s issuance, is not as attractive for investors as there are other options that offer better returns.

According to MAS’ data on the daily yields of government securities across various tenors, the yield for two-year bonds closed at 3.62 per cent on Aug 24, compared with 3.01 per cent for 50-year green bonds.

“Because of this environment, the investor base attracted to these bonds is likely to be reduced,” said Tay.

Winson Phoon, head of fixed income research at Maybank Securities, said that the recent phenomenon of US Treasuries’ long-term interest rates rising faster than the short-term rates, or what is known as bear-steepening of the US Treasury yield curve, might have affected the demand for long-tenor bonds.

This is why demand for this second round of offering are mostly from life insurance companies and pension funds, given that they are required to manage asset liability.

This level of inherent demand from such investors is now met by these green bonds, as there was limited supply of longer-tenor bonds prior to its offering. In fact, the low supply caused a deep inversion in the yield curve of Singapore government securities at one point, as long-end yields were priced at excessively low levels, and they have only started repricing higher in recent weeks, said Phoon.

Nevertheless, Clifford Lee, global head of fixed income at DBS, said that the oversubscription of this bond reopening still reflects its attractiveness to investors.

“We are confident these issuances will cement Singapore’s position as a global green finance hub. These also serve as a good reference point to help further develop ESG (environmental, social and governance) financing across Asia, where significant capital is required to finance its climate adaptation,” he added.

Phoon also noted that the level of interest remains commendable, since they could raise an amount that was at the top of the range provided earlier by the government, without significant yield concession. MAS said in a separate notice on Thursday that it had planned to raise between S$2.3 billion and S$2.8 billion.

The indicative range is already upsized from a minimum issuance size of S$1.8 billion MAS had initially stated on Monday, when it first announced that it was going to reopen its offer of green bonds sometime this week.

However, the lower yields of long-tenor bonds in the current market also means that it is a good opportunity for the government to issue these green bonds, said Tay.

And pricing these bonds through a syndicated book-building process gives the government the flexibility to decide on the optimal timing to issue them. This is in contrast to the conventional method, in which Singapore government bonds were priced via auctions that followed a strict calendar. The bookrunners are Citibank, DBS, OCBC, Standard Chartered and UOB.

Since this offer is a reopening of the first sovereign green bonds, it has the same coupon rate and the same maturity date of Aug 1, 2072.

The bonds are expected to be issued on Sep 4, with coupon payments disbursed on the first day of February and August every year, until maturity or when they are redeemed.

This offering is the second in a series of sovereign green bonds to be issued under the Singapore Green Bond framework. The Singapore government has indicated that a pipeline of up to S$35 billion of sovereign and public-sector green bonds will be issued by 2030.

A key aspect of the green label for the bonds is that proceeds will be used to finance expenditures in support of the Singapore Green Plan 2030, including two new MRT lines – the Jurong Region Line and the Cross Island Line.