The successful launch in Singapore of a sustainability-linked bond (SLB), raising S$675 million for Pan-Asian energy and sustainable solutions provider Sembcorp Industries (Sembcorp), marks the latest phase in the transition to a net-zero future.
Sembcorp, through its wholly-owned subsidiary Sembcorp Financial Services Pte. Ltd., priced its inaugural SLB, anchored by an investment of S$150 million from IFC. It also marks IFC’s first investment globally as an investor in an SLB, with the partnership between Sembcorp and IFC set to support more inclusive economic growth and private sector participation, while fostering sustainable business practices and significant employment opportunities.
Sembcorp’s SLB is the first issuance by an energy company in Southeast Asia and the region’s largest such issuance to date. Unlike traditional green bonds, SLBs involve issuers pledging to improve their performance against tailor-made ESG (environmental, social, and governance) targets.
The ten-and-a-half-year Singapore dollar bond at a coupon rate of 2.66 percent sets a new pricing benchmark for Sembcorp, strongly supported by high-quality institutional investors. Net proceeds from the SLB will be used for the purposes of financing the general corporate working capital requirements of Sembcorp and its subsidiaries (Group), refinancing the Group’s existing debt and/or financing or refinancing of the Group’s renewable energy, or potentially, other sustainable projects.
Sembcorp has more than 3.3 gigawatts (GW) of renewable energy capacity comprising solar, wind, and energy storage solutions in key markets such as Singapore, China, India, the UK, and Vietnam, with a target to quadruple its installed renewable energy capacity to 10GW by 2025 from 2.6GW in 2020.
“Sustainability is Sembcorp’s business, and we are fully committed to transforming our portfolio from brown to green,” said Wong Kim Yin, Group President & CEO of Sembcorp Industries. “The issuance of our inaugural SLB underscores this commitment. We are heartened that IFC has chosen our issuance to be its first investment in an SLB globally. Their support validates our strategy and spurs us on in our drive toward supporting the global energy transition and a low-carbon economy.”
Sembcorp’s SLB has been issued in accordance with the newly established Sembcorp Sustainable Financing Framework (Framework), which outlines Sembcorp’s strategic approach, Key Performance Indicators (KPIs), and Sustainability Performance Targets (SPTs) for its sustainability-linked transactions.
The Framework has been reviewed by DNV Business Assurance Singapore Pte Ltd (DNV), which provided a Second Party Opinion on the alignment of the Framework with the “Sustainability‐Linked Bond Principles 2020” published by the International Capital Market Association (ICMA) and the “Sustainability-Linked Loan Principles 2021” published by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA).
The interest rate of the SLB will be subject to a step-up margin of 0.25% from the first interest payment date on or after April 1, 2026, if the stated SPT of greenhouse gas emissions intensity reduction to 0.40 tons of carbon dioxide equivalent per megawatt-hour (tCO2e/MWh) or lower is not achieved by December 31, 2025.
“Sustainable growth, decarbonization, and energy security are key themes for both developed and emerging markets globally, but they should not be seen as mutually exclusive,” said Alfonso Garcia Mora, IFC Vice President for Asia and the Pacific. “With the success of this bond issuance, investors have made their position on the climate crisis very clear and are continuing to shift capital to align their portfolios with net-zero targets.”
Besides being aligned with the Paris Agreement, the investment from IFC is also in keeping with the World Bank Group’s Climate Change Action Plan (2021-2025). Under this plan, IFC has committed to aligning all new real sector operations with the objectives of the Paris Agreement by July 1, 2025, and set the target of reaching 35 percent financing for climate on average over the next five years. In addition, IFC will intensify its efforts to create bankable investment opportunities and to mobilize private financing towards decarbonizing key sectors as outlined in the CCAP.