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UOB, ADDX partner on sustainability-linked digital bond
Digitization uses blockchain, smart contracts to speed processing, lower custody, administration costs
7 Oct 2021 | The Asset

Singaporean bank UOB and digital securities exchange ADDX have concluded the digitisation and digital custody of the inaugural sustainability-linked bond recently launched by Sembcorp Industries, which comes amid a rise in the use of digital securities to enhance the efficiency of bonds and other fixed-income instruments.

UOB was appointed as a joint lead manager for the S$675 million (US$496.4 million) bond issued through Sembcorp’s wholly-owned subsidiary Sembcorp Financial Services (SFS). The bank also partnered with ADDX to custodize and manage a S$50 million portion of the bond.

Digital bonds make use of technologies like blockchain and smart contracts to eliminate manual processes in the bond’s custody and post-trade administration. A digital bond can be managed more efficiently as corporate actions, such as coupon payments, can be carried out with self-executing instructions on a single, distributed ledger. Digital bonds are also more efficient, less error prone and less costly for the issuer, investors and the banks underwriting the deal compared with traditional bonds.

Sembcorp’s ten-and-a-half-year sustainability-linked bond is due in 2032 and has been priced at a coupon rate of 2.66% per annum. Sustainability-linked bonds involve issuers pledging to improve their performance against tailor-made environmental, social and governance targets.

Through this sustainability-linked bond, Sembcorp has committed to a sustainability performance target (SPT) of reducing its greenhouse gas emissions intensity to 0.40 tonnes of carbon-dioxide equivalent per megawatt hour or lower by December 31 2025. If the SPT is not met, the coupon rate will step up by 0.25 percentage points per annum from the first interest payment date on or after April 1 2026. The bond payment obligations of SFS will be unconditionally and irrevocably guaranteed by Sembcorp.

“The collaboration with ADDX helps our corporate clients, such as Sembcorp, tap the benefits of digital bond issuance for security, time and cost efficiencies,” says Frederick Chin, head of group wholesale banking and markets, UOB. “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 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.”