Singapore's green bond opportunity
Singapore’s green bond market officially opened last week, with CDL Properties pricing a S$100m ($71.3m) two year, raising hopes that more issuers from the country will follow suit. But Singapore needs to encourage them.
Singapore’s jump into the green bond market is a little late in the game compared to others in the region. The Export-Import Bank of Korea was among the first to issue an Asian green bond back in 2013. Asia’s first corporate green bond came from Taiwan in 2014, while green issuers from China and India both entered the market in 2015.
But it is a major step in the right direction, and comes with regulatory support. The Monetary Authority of Singapore announced a new grant scheme less than a month ago, allowing qualifying issuers to offset 100% of the expenses attributable to getting an external review for green bonds, with a cap of S$100,000 per transaction.
Last week, investors welcomed Singapore's first green bond, as CDL sold a S$100m 1.98% 2019. Its trade is a landmark deal, but the company does not benefit from MAS’s incentive programme, which only takes effect in June.
Market watchers are eager to tout CDL's new notes as a demonstration of what the country is capable of, as well as the interest among issuers to pursue green offerings, even without a financial incentive.
But now the onus is on Singapore’s regulators and authorities to make sure that they don’t let the momentum fade.
There is a precedent for this fear.
Nearly a decade ago, Singapore dove into Islamic financing, publicly expressing support for the product and creating some issuer and investor friendly regulations. For instance, the MAS tweaked regulations to facilitate banks offering Islamic financing, and made the tax structure more accommodating to avoid double-taxing issuers and investors.
But since 2006, there have only been 24 publicly sold sukuk from Singapore issuers across different currencies, according to data from Dealogic. Of those, only four deals were worth more than $100m-equivalent.
In 2007, DBS set up the Islamic Bank of Asia as a separate legal entity — making it Singapore’s first Islamic bank — but said in 2015 that it was winding it down because it failed to reach economies of scale.
Part of the problem with Singapore's sukuk initiative was the lack of understanding and interest in the market, say those close to the situation.
But when it comes to developing its green bond market successfully, Singapore has plenty of regional examples from which to take tips.
Green bond volumes across Asia have benefited from a massive push by the Chinese government.
Last year, China’s green bond market saw volumes of $32.87bn from 41 deals, according to data from Dealogic. India too has pushed for more green deals, posting a volume of $1.3bn in 2016. Both countries have created frameworks for green bonds, outlining requirements for issuance.
Singapore can build off these examples, and focus on its own investor and issuer education on expressing the benefits of socially responsible investing. There is also a strong green investor base in Europe and the US that Singapore can harness, while also wooing Asian accounts.
The incentive of S$100,000 is small for an issuer, and the scheme only applies for deals with a minimum size of S$200m and a three year tenor, so it is unlikely to spur on companies that were not already contemplating green issuance. It's more of a way to remove an obstacle, rather than an active encouragement.
But other incentives can also feed into the market. For instance, Singapore has a S$100m “Green Mark Incentive Scheme” for buildings to update to more environmentally friendly standards.
CDL is one developer to pursue a green mark, and it will use the proceeds of its new bond to pay off a related loan.
Such aid, tax breaks and further education about the use of green bonds and its long term benefits would certainly boost similar projects in the city.
Sectors like property are easy partners in a place like Singapore, and other industries, such as power, also lend themselves to socially responsible investing.
The CDL notes were more or less sold to anchor investors before books even opened. But it is worth noting that the company increased its intended issuance size when additional investors expressed interest after books were opened.
It also provides an excellent example of Singapore companies coming full circle from green certification to using socially responsible investing for their financing needs.
Congratulations to Singapore for finally breaking ground on green bonds. Here’s hoping the drive doesn’t die with CDL.