United Overseas Bank Ltd (UOB) and digital securities exchange ADDX have concluded the digitization and digital custody of the inaugural sustainability-linked bond recently launched by Singapore-based utilities group Sembcorp Industries (Sembcorp).
This initiative comes amid a rise in the use of digital securities to enhance the efficiency of bonds and other fixed-income instruments, the companies said in a joint statement.
UOB was appointed as a joint lead manager for the S$675 million ($496.56 million) sustainability-linked bond issued by Sembcorp, through its wholly-owned subsidiary Sembcorp Financial Services (SFS). The bank also partnered with ADDX to custodize and manage a S$50 million ($36.78 million) portion of the bond.
Sembcorp’s ten-and-a-half-year sustainability-linked bond is due in 2032 and has been priced at a coupon rate of 2.66 percent per annum. Sustainability-linked bonds involve issuers pledging to improve their performance against tailor-made ESG (environmental, social, and governance) targets.
Through this sustainability-linked bond, Sembcorp has committed to a Sustainability Performance Target (SPT) of reducing its greenhouse gas emissions intensity to 0.40 tonnes of carbon dioxide equivalent per megawatt-hour (tCO2e/MWh) or lower by December 31, 2025.
If the SPT is not met, the coupon rate will step up by 0.25 percentage points per annum from the first interest payment date on or after April 1, 2026. The bond payment obligations of SFS will be unconditionally and irrevocably guaranteed by Sembcorp.
“At UOB, we believe in being at the forefront of providing progressive financial solutions that meet the needs of companies. This means anticipating market trends and having the foresight to strike new collaborations with like-minded parties, such as ADDX,” UOB Head of Group Wholesale Banking and Markets Frederick Chin said.
“The collaboration with ADDX helps our corporate clients such as Sembcorp tap the benefits of digital bond issuance for security, time, and cost efficiencies. Such initiatives enable our corporate clients in Singapore and across the region to engage a wider base of investors and enjoy the benefits of asset tokenization. The use of distributed ledger technology (DLT) and asset tokenization has strong potential in radically improving how capital markets can operate in the future and it is important our clients can take advantage of such new technologies,” he added.
Digital bonds make use of technologies such as blockchain and smart contracts to eliminate manual processes in the bond’s custody and post-trade administration. A digital bond can be managed more efficiently as corporate actions such as coupon payments can be carried out with self-executing instructions on a single, distributed ledger, the companies said.
Digital bonds are said to be more efficient, less error-prone, and less costly for the issuer, investors, and the banks underwriting the deal compared with traditional bonds.
UOB is a bank in Asia with a global network of around 500 branches and offices in 19 countries and territories in the Asia Pacific, Europe, and North America. In Asia, UOB operates through its head office in Singapore and banking subsidiaries in China, Indonesia, Malaysia, Thailand, and Vietnam, as well as branches and representative offices across the region.
Founded in 2017, ADDX is a full-service capital markets platform with Monetary Authority of Singapore (MAS) licenses for the issuance, custody, and secondary trading of digital securities. The financial technology company raised $50 million in its Series A round in January 2021. Its shareholders include Singapore Exchange, Temasek subsidiary Heliconia Capital, and Japanese investors JIC Venture Growth Investments (JIC-VGI) and the Development Bank of Japan (DBJ).
SGX-backed ADDX tokenizes global private equity fund managed by Partners Group