UOB-ADDX partnership paves path for Sustainability-Linked Bond

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As per a recent announcement, UOB along with digitalized securities exchange ADDX have finished digitization as well as digitalized custody of inaugural sustainability-linked bond unveiled by Sembcorp Industries.

The both firms have concluded with the UOB emerging as joint lead manager for the S$675-million sustainability-linked bond issued by Sembcorp, through its wholly-owned subsidiary Sembcorp Financial Services (SFS) as well as for customization, holding and managing a S$50-million portion of the bond.

Sembcorp’s ten-and-half-year bond is all set to be due within 2032 and have been valued at coupon rate of 2.66 percent per annum1. Sustainability-linked bonds encompass issuers guaranteeing to progress their performance against tailor-made ESG (environmental, social and governance) targets.

Via this bond, Sembcorp has committed to a Sustainability Performance Target (SPT) of dropping its greenhouse gas emissions intensity to 0.40 tonnes of carbon dioxide equivalent per megawatt hour (tCO2e/MWh) within 31 December 2025.

If the SPT is however, not met, the coupon rate will be upsurged by 0.25 percentage points per annum from the initial interest payment date on or post 1 April 2026. The bond payment obligations of SFS will be categorically and irrevocably guaranteed by Sembcorp.

Digital bonds utilize the technologies like that of the blockchain and smart contracts to remove manual processes in the bond’s custody and post-trade administration. A digital bond can be accomplished more competently as corporate actions like that of the coupon payments can be approved out with self-executing instructions on a single, distributed ledger.

Digital bonds are also more effective, less fault prone and less costly for the issuer, investors and the banks underwriting the deal associated with traditional bonds.

Statement from Head of Group Wholesale Banking and Markets, UOB, Mr Frederick Chin

The Head of Group Wholesale Banking and Markets, UOB, Mr Frederick Chin, stated that, At UOB, we believe in being at the forefront of providing progressive financial solutions that meet the needs of companies. This means anticipating market trends and having the foresight to strike new collaborations with like-minded parties, such as ADDX. The collaboration with ADDX helps our corporate clients such as Sembcorp tap the benefits of digital bond issuance for security, time and cost efficiencies. Such initiatives enable our corporate clients in Singapore and across the region to engage a wider base of investors and enjoy the benefits of asset tokenisation. The use of distributed ledger technology (DLT) and asset tokenisation has strong potential in radically improving how capital markets can operate in the future and it is important our clients can take advantage of such new technologies.”

Statement from Chief Commercial Officer of ADDX, Ms Oi Yee Choo

Ms Oi Yee Choo, Chief Commercial Officer of ADDX, stated: “In the past year, digital securities have achieved a high level of acceptance among blue-chip issuers of bonds and other securities globally. The collaborative work by UOB and ADDX was pioneering in nature because it involved a sustainability-linked bond. Digital securities are in fact well-suited for this use case, because smart contract technology is designed to enable automated actions throughout the life cycle of a bond, including adjustments to the coupon rate, if needed. As digital bonds enter a phase of widespread adoption, the cost of fundraising through bonds and other fixed income instruments will continue to fall, and companies that embrace the new technology will be able to raise capital more efficiently.”

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