MAS to offset cost of issuing green bonds with new grant scheme

Calvin Hui Channel NewsAsia 23 Mar 17;

SINGAPORE: The Monetary Authority of Singapore (MAS) will introduce a Green Bond Grant scheme this year to offset the cost of companies issuing sustainability-oriented bonds, Second Minister for Finance Lawrence Wong announced on Thursday (Mar 23).

Green bonds are debt instruments with proceeds earmarked for projects with environmental benefits, such as those to reduce greenhouse gas emissions.

Speaking at the Investment Management Association of Singapore’s 20th Anniversary conference, Mr Wong said the new grant comes as the central bank is looking to promote the development of a wider range of sustainability-oriented benchmarks, funds and products to cater to growing demand.

The global green bond market has grown rapidly over the years, reaching more than US$80 billion (S$112 billion) in 2016, the minister noted, adding that the market was starting to take off in Asia.

According to Mr Wong, MAS recognises that green bond issuers may have to bear additional costs as they engage external reviewers to ascertain their green bond status.

The Green Bond Grant scheme will be able to offset 100 per cent of the cost of obtaining an external review for green bonds for qualifying issuances, up to S$100,000 per issuance, he said.
Issuers will also be able to receive the grant multiple times. The funding period will take place between Jun 1 this year, and May 31, 2020.

Qualifying criteria states that the bond has to be issued and listed in Singapore, have a minimum size S$200 million and tenure of at least three years. The bond can be denominated in any currency.

While green bonds might incur higher costs with the need for an external review, PwC Singapore’s Asia-Pacific Asset and Wealth Management Leader Justin Ong said the focus of green bonds is not necessarily on higher returns, but on investment decisions that are environmentally sustainable.

“The world as I see it is starting to change. A lot of the investors today are much more focused around 'What am I putting my money in? Would I be prepared to forgo some returns to make sure that I am happy with the kind of structures and kind of policies the company is making?' And we are starting to see that to change.”

The introduction of this grant scheme has also been welcomed by industry watchers.

Calling it a “positive development” for Singapore’s capital markets, Tony Lewis, who is head of HSBC Securities Services, Singapore, said: “Green finance is a rapidly growing field, spurred on by consensus that more needs to be done to combat climate change. Encouraging more issuers to tap into the green bond market should help kick start interest in this asset class and foster the growth of green bonds’ issuance in Singapore.”

PwC Singapore’s Mr Ong agreed, saying events like haze and pollution in the Asia-Pacific has put the focus on sustainable development.

And while it is still early days, the development of the green bond market in Singapore will help strengthen Singapore’s position as a financial services hub, said Mr Ong. “I would say we are still taking baby steps. It’s a very new area around the world, but it’s a long-term thing and will build a strong foundation for our future.”

GOVT SEEKS FEEDBACK ON NEW CORPORATE STRUCTURE

Meanwhile, Mr Wong also announced the launch of a public consultation to gather feedback on a new corporate structure called the Singapore Variable Capital Company (S-VACC).

S-VACC seeks to complement existing corporate structures for investment funds and allow asset managers to further consolidate their operations in Singapore by domiciling more of their funds here, alongside their fund management activities, Mr Wong said.

“This will spur demand for fund servicing activities, such as accounting, legal, custody and tax in Singapore, hence creating more jobs in the broader professional services sector," the minister said.

According to MAS, there are three types of structures used by investment funds in Singapore, namely unit trusts, companies formed under the Companies Act and limited partnerships. The S-VACC seeks to complement these existing structures with one that is tailored for investment funds.

Mr Wong added that the new corporate structure would provide greater flexibility and cost efficiency to asset managers by allowing for both open-ended and close-ended fund structures. It also allows for investment across all asset classes and may be used by both retail and private funds.

By consolidating administrative functions at the umbrella fund level, asset managers can also harness economies of scale, Mr Wong said. “This means that sub-funds, with varying risk levels, different investment objectives and classes of investors can be housed under the same umbrella as a single legal entity,” he explained.

The public consultation will end on April 24, said MAS.

- CNA/mz