Singapore’s energy solutions provider Sembcorp Industries on September 29 priced its inaugural sustainability-linked bond ( SLB ) amounting to S$675 million ( US$496.30 million ), representing the first such issuance by an energy company in Southeast Asia.

The transaction was anchored by an investment of S$150 million from the International Finance Corporation – its first investment globally as an investor in an SLB. The partnership between Sembcorp and IFC is set to support more inclusive economic growth and private sector participation, while fostering sustainable business practices and significant employment opportunities.

The 10-1/2-year unrated bond, which marks the latest phase in the transition to a net-zero future, was priced at a coupon rate of 2.66% – or 88.5bp over the Singapore swap offer rate ( SOR ) – setting a new pricing benchmark for Sembcorp.

The SLB interest rate 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 sustainability performance target ( SPT ) of greenhouse gas emissions intensity reduction to 0.40 tonnes of carbon dioxide equivalent per megawatt-hour or lower is not achieved by December 31 2025.

ESG targets

Unlike traditional green bond, SLB involves issuers pledging to improve their performance against tailor-made environmental, social and governance ( ESG ) targets.

Net proceeds from the SLB will be used for the purposes of financing the general corporate working capital requirements of Sembcorp and its subsidiaries, 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 United Kingdom 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,” says Sembcorp group president and CEO Wong Kim Yin. “The issuance of our inaugural SLB underscores this commitment.”

Sembcorp’s SLB has been issued in accordance with the newly-established Sembcorp sustainable financing framework, which outlines the company’s strategic approach, key performance indicators ( KPIs ) and SPTs for its sustainability-linked transactions.

Sustainability principles

The framework has been reviewed by DNV Business Assurance Singapore ( DNV ), which provided a second-party opinion on 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 ).

Besides being aligned with the Paris Agreement, the IFC investment is also in keeping with the World Bank Group’s Climate Change Action Plan ( 2021-2025 ). Under this plan, IFC has committed to align all new real sector operations with the objectives of the Paris Agreement by July 1 2025 and set the target of reaching 35% 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 Climate Change Action Plan.

Sembcorp’s SLB, which was supported by high-quality institutional investors, was issued through its wholly-owned subsidiary Sembcorp Financial Services and was drawn under the company’s S$3 billion multi-currency debt issuance programme. DBS and United Overseas Bank were the joint bookrunners and lead managers for the transaction.