SINGAPORE – The muted response from retail investors to Singapore’s inaugural sovereign green bond was expected given the product’s 50-year tenor, analysts said.
The lengthy period before the bond matures seems daunting to many individuals but is seen as being more appropriate to institutional investors such as pension funds and insurance companies that have long-term investment horizons.
The public offer of Singapore’s first sovereign green bond drew 1,749 applications totalling $52.9 million, representing a 1.06 subscription rate, the Monetary Authority of Singapore said on Thursday (Aug 11).
All valid applicants received either their full allotment or a partial allocation. The bonds will be issued to retail investors on Aug 15.
Bonds worth $2.35 billion were allotted to institutional and other investors by the end of Aug 4, after strong investor demand demonstrated by a subscription rate of about 2.26.
Proceeds from the sale of the green bonds will finance projects with environmental benefits, including the Jurong Region and Cross Island MRT lines.
Maybank Securities head of fixed-income research Winson Phoon noted that the different responses between retail and institutional investors were likely well anticipated, given that the public offering tranche accounted for just 2.1 per cent of the total sale of $2.4 billion.
The demand from institutional investors was strong, primarily from life insurance companies that need long-duration assets to match their long-term liability mandates, he said, with the green labelling an added benefit.
“But for most retail investors, the ultra-long tenor is a major deterrence,” said Mr Phoon, adding that retail investors will largely prefer Singapore Savings Bonds because of their flexibility when it comes to redemption.
iFast Global Markets general manager Terence Lin noted that the lower demand from retail investors could be due to the lengthy tenor and modest yield of 3.04 per cent.
“It is perhaps heartening to know that individual investors are not simply buying an investment purely because of the sustainability factor, but are taking into consideration the alignment with their own investment needs,” he said, adding that most individuals are likely to have indirect exposure to sustainability-linked bonds such as through mutual funds, rather than buying such bonds outright.
Mr Sharad Somani, partner and head of infrastructure advisory at KPMG in Singapore, outlined other possible reasons for the lacklustre retail response, including concerns over interest rate volatility and the uncertain economic environment.
However, Mr Somani noted that there is potential for retail interest to increase as green financing gains greater traction in Singapore.
This inaugural sovereign green bond is part of a pipeline of up to $35 billion of sovereign and public-sector green bonds that the Singapore Government and its statutory boards will issue by 2030.
Deloitte South-east Asia climate and sustainability assurance leader Brian Ho said: “Further education would be helpful to improve investors’ knowledge and understanding of green finance, the products available and the potential financial and environmental returns.”