FAQ: What you need to know about Singapore's first sovereign green bonds and are they for you?
What are sovereign green bonds about and what should investors consider before purchasing these bonds? CNA asks the experts.
SINGAPORE: Following strong demand from institutional investors for Singapore's first sovereign green bonds, retail investors can apply to purchase them from Friday (Aug 5).
The S$2.4 billion bonds, called the Green Singapore Government Securities (Infrastructure) - or Green SGS (Infra) - are also the first 50-year bonds issued by the Singapore Government.
They are priced at a yield of 3.04 per cent, with a coupon rate of 3 per cent per annum.
The bulk of the issuance, about S$2.35 billion, was placed with institutional and accredited investors. The remaining S$50 million were offered to individual investors.
Here is what you need to know about the bonds and what to consider before applying for them.
What are these sovereign green bonds?
The Green SGS (Infra) bonds are part of the pipeline of up to S$35 billion of sovereign and public sector green bonds that the Government and its statutory boards will issue by 2030.
As part of the Singapore Green Bond framework published in June, proceeds from green bond issuances must adhere to guidelines and can be used to finance projects with environmental benefits, like the upcoming Jurong Region Line and Cross Island Line of the country's rail network.
Other green projects include those in renewable energy, energy efficiency, pollution prevention and climate change adaptation.
Speaking to CNA on Wednesday, KPMG Singapore director of sustainability services Cherine Fok said that she would like to see proceeds from the bonds go towards green innovation as well.
“Hopefully, at least in my own wish, I would like to see some of the funds being channelled to more green innovation,” she told CNA on Wednesday.
“We are looking at maybe different kinds of infrastructure models, more digitalisation, perhaps even more shared-service platform models that can be financed by the bond.”
The 50-year bonds have a maturity date of Aug 1, 2072. The coupons will be paid semi-annually on Feb 1 and Aug 1 for the life of the bond, starting on Feb 1, 2023.
What should I consider before purchasing these bonds?
While the bonds are fully backed by the Government, the prices of long-term bonds, like Green SGS (Infra), are still based on market conditions and can rise or fall before the bonds mature.
For instance, prices will fall if interest rates rise. This means that an investor seeking to sell the bond before its maturity date could suffer a loss on the investment, making it less appealing to retail investors.
In a press release, the Monetary Authority of Singapore (MAS) urged retail investors to review the bond product’s details carefully and assess whether the risk returns and characteristics of long-tenor bonds meet their financial needs.
It added that all investments in Singapore Government Securities “bear market risk”.
Ms Fok said that retail investors may be “less likely to jump on board” as they face challenges in verifying the underlying assets associated with the bonds.
Although the long tenors may also put some retail investors off, long tenors are required for sovereign green bonds, she noted.
“In terms of the retail investors, the tenor of the bond has always been one of the key considerations,” she said.
“It has got to be so long primarily because of the nature of the underlying assets being mainly energy and infrastructure assets, or even transport assets. So (it) … will take some time for assets to actually be completed or even operational.
“However, the other challenge with it being a sovereign green bond, or sustainable bond, is the fact that many of the green benefits will take some time to play out, so that itself in terms of non-tangible returns, or non-financial returns, is something that is not easily measurable and therefore, for individual retail investors, they may find that that is a hurdle.”
While the financial returns of the bonds may not appeal to older investors, the opportunity to leave a legacy might be a selling point for some high-net-worth individuals, Ms Fok added.
Institutional investors, meanwhile, may see long tenors as a positive, particularly when taking into account the recent volatility in markets, said Nirgunan Tiruchelvam, the head of consumer sector equity research at Tellimer.
“Institutional investors need to look at this from a long-term perspective – it's unlikely that the volatile conditions will persist,” he told CNA.
“For a long time there'll be volatility, but it may not be of the same magnitude that we've seen in the last six to eight months or, for that matter, in the last two or three years.
“Over the long term, if you impose a certain set of discipline criteria, it's likely that you would be able to perform very well on a judicious basis.”
Ms Fok also highlighted how the long tenor might appeal to investors looking to avoid volatility.
“We are looking at long-term bonds, which actually removes the short-term variability arising from any fluctuations in the immediate political situation or in the immediate demand-supply kind of gap,” she said.
How do retail investors apply for these bonds?
Retail investors applying for the bonds through the public offer must do so with a minimum of S$1,000 and in multiples of S$1,000.
Applications can be made via the ATMs and online banking platforms of DBS, OCBC, POSB and UOB. Select the tab that says “Electronic Securities Application” or “Initial Public Offering Application”, instead of the tab for SGS applications.
Each individual will only be able to submit one application. You will need an individual Central Depository (CDP) account and applications made using joint CDP accounts will be invalid.
Applications can only be made in cash. Retail investors will not be able to tap on money in their Central Provident Fund or Supplementary Retirement Scheme accounts for applications.
Each application comes with a non-refundable administrative fee of S$2.
Allotment results will be announced on or about Aug 11. If your application is successful, the bonds will be credited to your CDP account in about two business days after the allotment date.
In the event of over-subscription, the bonds will be allocated to as many individuals as possible, taking into account the distribution of valid applications.
What other bonds does Singapore issue for retail investors?
In addition to the new Green SGS (Infra) bonds, Singapore also issues SGS bonds for market development and infrastructure.
These existing SGS bonds have maturities ranging from two to 30 years.
As with Green SGS (Infra) bonds, a minimum of S$1,000 is required to invest in existing SGS bonds, with investment amounts in multiples of S$1,000. These SGS bonds are issued monthly and occasionally through syndication.
The Government also issues six-month and one-year treasury bills – or T-bills – and savings bonds with terms of up to 10 years.
A minimum of S$1,000 is also required to invest in T-bills, with investment amounts in multiples of S$1,000. T-bills are issued quarterly.
The minimum investment amount for savings bonds, meanwhile, is S$500, with investment sums in multiples of S$500. Savings bonds are issued monthly.
Additional reporting by Tang See Kit