* Sustainability bonds likely to prove tough sell for yield-hungry Singapore investors
By Daniel Stanton and Kit Yin Boey
SINGAPORE, April 10 (IFR) - The International Bank for Reconstruction and Development, or World Bank, is exploring a potential issue of retail bonds in Singapore to boost interest in sustainable development bonds and tap the affluent population.
In a briefing to potential investors last Tuesday, the multilateral institution said it was working with arranger DBS to find a suitable structure for a retail bond offering.
"It might not be in Singapore dollars," said George Richardson, director in the capital markets department at the World Bank treasury. "It could be in another currency. That's a discussion we are having with DBS."
The World Bank has been looking at selling Sustainable Development Goals bonds, which support the UN drive to end poverty, protect the planet and ensure prosperity for all.
Last month, it raised 163 million euros from the sale of SDG bonds of 15 and 20 years to institutional investors in France and Italy. The return on investment is directly linked to the performance of stocks in the Solactive SDG World Index, which comprises 50 companies deemed to dedicate at least one-fifth of their activities to sustainable products or to be leaders in related issues. The bonds are also capital protected.
However, the World Bank may not be able to sell such bonds to its intended target market in Singapore, as only plain vanilla structures are allowed.
"At the moment, regulations prevent retail from purchasing those," said Richardson. "Private wealth can, but 'retail retail' can't."
He said the bank was discussing with the Monetary Authority of Singapore about a potential exception for the instruments, given that the principal was protected and the issuer was such a high-quality institution. The World Bank has previously sold retail bonds in markets like Japan and Italy, and part of the objective of such an issue in Singapore is to develop the local bond market. YIELD FOCUS The World Bank provided $181 million of funding to Singapore in 1963-75, according to a presentation, helping to develop institutions like the National University of Singapore and the bank that became DBS, but the city state has long since turned lender.
While welcoming this initiative to deepen Singapore’s retail bond market, debt bankers believe a retail bond may not be feasible.
“It is simple: Singapore investors want yields,” said one syndicate banker. “A World Bank bond will pay a very low yield, probably lower than deposit rates.”
High-net-worth investors are likely to snub the potential issue as well.
“For me personally, I would not be interested as I want yields,” said one investor.
The Triple A rated supranational agency has previously sold bonds in Singapore dollars to institutional investors. In its most recent issue, in August 2014, it sold S$500 million ($357 million) of five-year bonds at 1.473 percent, below the Singapore dollar swap offer rate, and a new issue would be expected to come in line with, or even inside, Singapore government bonds.
That could make it hard to attract Singapore's retail investors, who have largely turned up their noses at the yields on offer from Singapore Savings Bonds, which are government securities targeted at them. Despite low transaction fees of S$2 for subscription and redemption, and the option to cash out every month with no penalty, undersubscription has been chronic.
The first bond in October 2015 targeted up to S$1.2 billion, but attracted orders of only S$413.2 million. While the government aimed to raise up to S$4 billion from SSBs in 2015, it only managed S$711.5 million.
The April 2017 issue attracted eligible orders of S$70.8 million, from a maximum available S$150 million size. This month's bond offers an average annual return of 2.32 percent over 10 years, based on the Singapore Government Securities rate.
Retail bonds from high-yield issuers like Hyflux and Oxley Holdings, paying 5 percent or higher, have been more popular.
Singapore's year-on-year core inflation rate was 1.2 percent in February. This compares to rates of up to 3.5 percent citizens and permanent residents can currently earn on their Central Provident Fund accounts, the country's social security savings plan, although there are many restrictions on withdrawals. (Reporting by Daniel Stanton and Kit Yin Boey; Editing by Vincent Baby and Steve Garton)