State-owned mobile network operator, Singapore Telecommunications (Singtel) has announced the pricing of a $100 million, five-year digital sustainability-linked bond (SLB), through its wholly owned subsidiary, Singtel Group Treasury (SGT).
The entire bond will be tokenised on digital securities exchange, ADDX. Tokenised, or digital, bonds are issued on blockchain and leverage smart contract technology to eliminate the manual processes throughout the life cycle of a security, including issuance, distribution, custody and post-trade servicing.
“Tokenised securities are more efficient from both a cost and time perspective, because they eliminate manual processes and reduce the number of intermediaries needed for an issuance,” explained Oi-Yee Choo, CEO of ADDX, in an interview with FinanceAsia.
As an example, she gave the inefficiency arising from the need to reconcile different ledgers maintained by multiple players in a traditional security deal.
“With tokenised securities, the blockchain and smart contract technology ensures that there is a single distributed ledger that is tamper-proof, so that the ownership of securities is always up to date in real time, and coupon payments can completed in an instant, automated way.”
Singtel’s latest issuance could signal a growing acceptance of digital bonds by corporates. Choo said ADDX was indeed beginning to see greater interest from corporate treasuries.
“Singtel has joined the list of early adopter companies who see clear benefits to tokenisation and are receptive to this new digital way of issuing bonds. We think there is a high probability of mass adoption over the next one to two years.”
Other notable issuances on ADDX include Sembcorp’s inaugural S$675 million ($496.4 million) SLB in October last year, and CGS-CIMB’s series of three-month digital commercial papers.
Fund managers are another group of players that has shown strong support for tokenisation, Choo said. More than half the deals on ADDX today are funds, she added.
US private equity firm, Hamilton Lane, and Switzerland’s Partners Group have listed funds on ADDX.
“Fund tokenisation projects are common, in part because there is robust demand from investors for the diversification that funds provide to an investment portfolio. Fund managers are also eager to explore new opportunities to expand their assets under management beyond the traditional institutional investor space.”
Security tokenisations can also help to democratise investment by making certain opportunities more accessible to smaller investors.
However, a lack of investor education remains a barrier to the further adoption of digitalisation of securities, Choo said. “For issuers, tokenisation is a new technology that needs to be put through their due diligence processes so that they fully understand the nature of the risk and the opportunity.”
Choo, who was appointed ADDX CEO in March, thinks Singapore’s regulatory approach to digital assets has been “progressive and thoughtful” and believes in the city’s state’s potential to become a regional, or even global, hub for such assets.
“Singapore was among the earliest countries to say it would regulate digital securities in the same way as traditional securities, which provided the clarity and certainty companies needed to begin investing in the space.”
A recent report by OMFIF found public sector borrowers predict that bond markets will be fully digitalised within 5 years.
Sustainability drive
The latest issuance is in line with Singtel Group’s commitment to sustainability, the announcement said. With SLBs, borrowing costs are tied to the achievement of predefined ESG targets. In the case of Singtel’s latest issuance, the company has set out to reducing its Scope 1 and Scope 2 greenhouse gas by 2025, compared to a 2015 baseline.
Should Singtel fail to meet these targets, it will make additional investments of at least 0.25% of the outstanding aggregate principal amount of the SLB into “defined green efforts”, the release said. Singtel decline to provide further details.
UOB will act as the lead manager for the issuance.
