Demand for Singapore’s sovereign green bond remained high at the Aug 24 reopening of an existing 50-year maiden note sold in August 2022.
The Monetary Authority of Singapore (MAS) initially aimed to raise at least $1.8 billion at the start of the week, before upsizing the issue to as much as $2.8 billion on Aug 24.
Of the offer amount, $50 million was set aside for retail investors in a public offering that closed on Aug 29.
The orderbook was 1.43 times the amount offered to institutional investors, down from 2.26 times the first time around. MAS raised $2.4 billion in the inaugural offering last year.
Officially called the Green Singapore Government Securities (Infrastructure), the green bonds were priced to yield 3.04%, unchanged from last year. The final yield was 11 basis points (bps) tighter than the initial guidance of 3.15%. The effective yield reflects a coupon of 3% and an offering price of $99.26 per $100 in principal value. The reopened green bond matures on Aug 1, 2072, similar to the maiden offer.
Both offers contribute towards Singapore’s plan to issue $35 billion of green bonds by 2030 to fund public-sector green infrastructure projects, as announced by Finance Minister Lawrence Wong at Budget 2022.
See also: Singapore boosts green bond sale to as much as $2.8 bil
According to the Singapore Green Bond Framework published in June 2022, bond proceeds will fund projects that are classified as “nationally significant” under the Significant Infrastructure Government Loan Act, or Singa. These projects should be controlled and legally owned by the government, cost at least $4 billion, last minimally for 50 years, and support national productivity or Singapore’s economic, environmental or social sustainability.
Present examples include the upcoming Jurong Region Line and the Cross Island Line in Singapore’s rail network. Singa will also extend to projects in renewable energy, energy efficiency, green buildings, clean transportation, sustainable water and wastewater management, pollution prevention, climate change adaptation, biodiversity conservation, and sustainable management of natural resources and land use.
The government is expected to share a post-issuance green bond report on the allocation and expected impact of financing these electric rail projects in the coming months.
Sustainable bond issuance to near US$1 trillion
Significant sovereign green bond issuances in 1H2023 include Germany with US$15 billion ($20.33 billion), Italy with US$13 billion, Hong Kong with US$12 billion, and the UK with US$10 billion.
According to Moody’s, global sustainable bond issuance is on course to hit US$950 billion in 2023. Sustainable bond issuance totalled US$258 billion in 2Q2023, flat y-o-y and down 4% q-o-q, and made up 15% of the global bond market.
Sustainable bonds are a loose, collective term for four segments of bonds. During the quarter, there were US$156 billion of green bonds, US$51 billion of social bonds, US$40 billion of sustainability bonds, and US$11 billion of sustainability-linked bonds (SLBs) — together known as GSSS bonds.
See also: Asia ex-Japan ESG bonds to remain flattish in 2022 from all-time high in 2021: J. P. Morgan
Total GSSS bond issuance reached US$526 billion in 1H2023, a 7% increase y-o-y despite a decline in overall bond issuance. “We expect sustainable bond issuance to remain fairly robust during the second half of the year, with the potential for issuance to eclipse our 2023 forecast of US$950 billion,” reads a Moody’s Investors Service report dated July 27.
The number of first-time sustainable bond issuers coming to market has fallen in recent quarters, and Moody’s warns that this could potentially constrain market growth.
Following a surge in first-time sustainable bond issuers in 1H2021, when there was a global average of 77 debut sustainable bond issuers per month, the trend has reversed. First-time sustainable bond issuers totalled 51 average issuers per month throughout 2022, and the figure fell to 29 average issuers per month in 1H2023.
“While some of the decline may be attributable to market conditions, other more secular factors could be holding back would-be debut issuers, including heightened scrutiny of potential greenwashing and an increasingly complex ESG regulatory and political landscape,” says Moody’s.
Energy transition, China to lead: JP Morgan
The same trend is seen within Asia ex-Japan, with GSSS bonds issued in G3 currencies down to US$19.7 billion in 1H2023, from US$32.7 billion in 1H2022, according to JP Morgan. Annualised 2023 numbers of approximately US$39.4 billion could mean an extended decline from 2021’s heyday of US$70.6 billion and 2022’s $48.2 billion.
That said, the share of GSSS bonds from total supply has remained somewhat stable in 1H2023 at 28.9% in Asia ex-Japan, down from 31.9% this time last year.
“This year has been challenging, primarily because interest rates have risen and there has been some volatility in the market globally, so supply is lower versus last year,” says Puja Shah, JP Morgan’s head of sustainable finance debt capital markets, Asia ex-Japan. “But interestingly, ESG as a piece of the whole pie has remained broadly consistent as last year.”
The energy transition will be a growth engine for GSSS bond issuance, with China in the lead, says JP Morgan in its 2023 mid-year review of ESG financing.
In 2022, green debt issuance exceeded fossil fuel debt issuance for the first time, according to JP Morgan. Green-labelled debt issuance reached US$581 billion in 2022, representing 7% of global debt issuance for the year, besting the US$531 billion issued by the fossil fuel industry.
Global investment in clean energy is on course to rise to US$1.7 trillion in 2023, with solar set to eclipse oil production for the first time, according to a May report by the International Energy Agency.
China is investing the most in energy transition globally; its annual investment grew at a CAGR of 22.1% between 2016 and 2022, higher than the US at 12.5% and Europe at 17.6%.
Within Asia ex-Japan, however, China’s share of the GSSS bond market fell to 19% in 1H2023 from nearly 50% in 2022, as higher cost of borrowing has forced a large quantum of offshore financing to the China onshore bond market.
Taking China’s place so far this year has been South Korea, whose piece of the pie grew from 26% last year to 34% in 1H2023. JP Morgan expects Asia bond supply to end the year at US$130 billion, with GSSS bonds forming at least 25%-30% of the G3 bond market.
“The pillars of the market would, of course, be the banks, sovereigns [and] some of the green renewable companies; they will continue to come to the market,” says Shah.
Transition finance is gaining traction in Asia, says Shah, and with it comes greater scrutiny on the preparedness of issuers. “[Targeting] net zero by 2050 is fine, but it’s so far away that it’s not as meaningful [as] providing targets for 2030.”
Rules and taxonomies
But even the most well-intentioned issuers need a common language to justify their targets. Speaking on the sidelines of the International Capital Markets Association’s (ICMA) 9th Annual Conference of the Principles on June 28, Shah emphasises the importance of taxonomies, which define criteria for economic activities that are aligned with decarbonisation targets. “The Singapore-Asia Taxonomy and the development of other taxonomies are fantastic. They provide the right kind of tool for issuers to align to while also providing a local flavour.”
Singapore’s sustainable debt market grew “healthily” from about US$2 billion in 2018 to more than US$20 billion last year, says Indranee Rajah, Minister in the Prime Minister’s Office and Second Minister for Finance and National Development, in her speech at the ICMA conference. The government will update the Singapore Green Bond Framework “to align with the Singapore-Asia Taxonomy for green activities”, she adds.
The next big focal point will be the interoperability of the world’s taxonomies, says Shah. “The EU taxonomy is a single taxonomy for the entire EU region, and Asia is a combination of several countries, which have different pathways of growth and development.”
Regulators are well aware of the challenges, she adds. “There is greater focus on promoting the development of credible GSSS issuance markets in Asia.”
Sovereign GSSS bond issuances encourage local markets to follow, says Shah. The Philippines issued a US$750 million sustainability bond in October 2022 with a 5.95% coupon due 2047, while Hong Kong issued a multi-tranche green bond in January worth US$5.75 billion — the largest ESG bond issuance in Asia — and followed this up in May with an institutional green bond offering worth nearly US$6 billion.
Also in May, Indonesia issued the world’s first ICMA-aligned sovereign blue bond, raising 20.7 billion yen ($190 million) at 1.2% and 1.43% coupon rates for seven- and 10- year tenures respectively.
The proceeds from this bond issuance will provide a much-needed boost to Indonesia’s blue economy, says the United Nations Development Programme, including coastal protection, sustainable management of fisheries and aquaculture, marine biodiversity conservation and mangrove rehabilitation.
From a policy perspective, sovereigns want to develop a vibrant onshore market, says Shah. “At the end of the day, Asian issuers will always have the ability to move between different financing options. So, I think sovereigns are trying to make sure that ESG is pervasive in all markets.”
Infographics: Land Transport Authority, Moody's Investors Service, Environmental Finance Data
