Sembcorp powers up Singapore ESG
Sembcorp Industries brought the new breed of ESG bonds to Singapore’s power industry, printing the largest sustainability-linked bond from South-East Asia so far.
The S$675m (US$497m) 10.5-year unrated senior bond priced on Wednesday at par to yield 2.66%, making Sembcorp the first energy company from South-East Asia to sell SLBs.
“Sustainability is Sembcorp’s business, and we are fully committed to transforming our portfolio from brown to green,” said Wong Kim Yin, group president and CEO of Sembcorp.
The deal was said to be strongly anchored when bookbuilding began with the yield already decided, and final books were around S$700m from 17 accounts.
After pricing, it was announced that International Finance Corp, the private sector arm of the World Bank, had invested S$150m in the issue as an anchor investor. All the bonds were placed in Singapore, with banks and public sector investors taking 75%, and agencies and fund managers 25%.
"We are heartened that IFC has chosen our issuance to be its first investment in a SLB globally," said Wong. "Their support validates our strategy and spurs us on in our drive toward supporting the global energy transition and a low-carbon economy.”
Pricing of 2.66%, or 88.5bp over the 10.5-year swap offer rate, appeared to come inside Sembcorp’s existing curve. Its bonds due June 2031, a 10-month shorter maturity, were bid at 2.72%.
The coupon of the SLB will step up by 25bp effective from the first interest payment date in April 2026 if the energy and urban developer fails to meet the sustainability performance target of achieving greenhouse gas emissions intensity at 0.40 tonnes of carbon dioxide per megawatt hour produced (tCO2e/MWh) or lower as of December 31 2025.
If Sembcorp meets the target, this would be a 25% reduction from the tCO2e/MWh level in 2020.
Sembcorp has said it will make no new investments in coal-fired energy assets and aims to achieve net-zero carbon emissions by 2050. It also wants to halve its absolute emissions to 2.7 million tC02e by 2030, from 5.4 million in 2010.
It aims to increase its installed renewable capacity to 10GW by 2025, from more than 3.3GW currently.
In July it launched a floating solar-photovoltaic system on Tengeh reservoir which will be able to generate 60MW at its peak and is one of the world’s largest inland floating solar PV systems. The electricity generated will be enough to power Singapore’s five local water treatment plants.
Singapore state investment holding company Temasek Holdings, rated Triple A, owns a 49% stake in Sembcorp Industries.
The new bonds, issued by Sembcorp Financial Services and guaranteed by Sembcorp Industries, will be drawn from a S$3bn multi-currency debt issuance programme.
Proceeds will be used for general corporate purposes and to refinance debt, while the company can only use the S$150m investment from IFC to finance or refinance renewable energy projects that meet IFC’s ESG standards.
DBS and UOB were joint lead managers and bookrunners. DNV Business Assurance Singapore provided a second-party opinion on the sustainable financing framework.
This is Singapore's second SLB offering, following Temasek-owned urban planning and development firm Surbana Jurong's S$250m 10-year bond in February.
Despite the growing interest in ESG finance, the Climate Action Tracker, a group funded by foundations and governments including the European Climate Foundation, on September 15 said that Singapore’s climate targets and policies were “critically insufficient”.
The CAT said that “Singapore’s climate policies and commitments reflect minimal to no action and are not at all consistent with the Paris Agreement”, which aims to limit global warming to 1.5 degrees Celsius compared to pre-industrial levels.
“If all countries were to follow Singapore’s approach, warming could reach over 3 degrees Celsius and up to 4 degrees Celsius,” wrote CAT, in an assessment based on 2020 data.
Natural gas is used to produce more than 95% of Singapore’s electricity, after it reduced the use of dirtier fuel oil, but the government argues it is misleading to compare Singapore to larger countries.
“[G]iven the small size of our nation, and our dense urban landscape, there are challenges to using alternative energy options like solar and wind power on an island-wide scale,” wrote the National Climate Change Secretariat, a unit under the prime minister’s office.