The Monetary Authority of Singapore ("MAS") introduced three bond grant schemes this year to promote Singapore as a base to raise funds in the capital markets and encourage bond issues in Singapore to be rated. The schemes fund eligible expenses of bond issues to be listed on the Singapore Stock Exchange ("SGX"). This bulletin discusses key aspects of each bond grant scheme and its likely impact on the Asian bond market.

Background

In recent years, Singapore has become a popular listing venue for bonds issued by not only Asian but also European and Australian companies. Singapore offers a well-established ecosystem of financial institutions, professional service providers such as legal and accounting firms, credit rating agencies, and market infrastructure for companies to issue, market, list and trade their bonds. To attract more issuers to Singapore, the MAS introduced three bond grant schemes: the Asia Bond Grant Scheme ("Asia Scheme"), the SGD Credit Rating Grant Scheme ("SGD Rating Scheme") and the Green Bond Grant Scheme ("Green Scheme"). Under these schemes, qualifying issuers will be entitled to a grant of up to a maximum of S$400,000 which may be used towards payment of fees to Singapore based service providers in connection with a bond issue. It should be noted that qualifying issuers can avail of multiple schemes with the exception of the SGD Rating Scheme which cannot be used together with the Asia Scheme.

Asia Bond Grant Scheme

The Asia Scheme is valid for three years from 1 January 2017 to 31 December 2019. It funds up to 50% of qualifying issuers’ one-time issue costs of engaging Singapore-based service providers including international legal fees, auditors’ fees, arranger fees, listing fees and credit rating agency fees, subject to a cap of S$200,000 for unrated issues and S$400,000 for rated issues. Goods and services tax and other equivalent taxes, printer’s fees, trustee fees, paying agent fees and roadshow and marketing expenses are, however, excluded.

Qualifying issuer: Asian corporates and non-bank financial institutions (such as policy banks and export and import banks) with global headquarters in an Asian country that are debut international issuers are “qualifying issuers.” Institutions with a deposit-taking licence or which are licensed or regulated as a bank are not eligible under the Asia Scheme. In other words, all non-bank Asian issuers are eligible to apply for the Asia Scheme. Asian countries include ASEAN, China/Hong Kong, India, South Korea, Japan, Australia and New Zealand.

Issuers that have previously issued bonds are still eligible and considered debut issuers so long as they have not filed a Return on Debt Securities ("RODS") form with the MAS between 2012 and 2016 for the purposes of availing the Qualifying Debt Securities ("QDS") scheme (discussed below). Potentially, this means issuers that have filed a RODS form before 2012 or after 2016 should still qualify, although we would expect the MAS to scrutinize the latter. In addition, it also remains to be seen whether it is possible for a group company which has previously issued bonds to structure a deal in such a way as to allow it to qualify under the Asia Scheme. For example, by using another group company that has not previously issued or a special purpose vehicle to issue the bonds.

Qualifying currencies: Qualifying currencies include the local currency of the qualifying issuer and G-3 currency.

Qualifying issue: To be eligible under the Asia Scheme, the bond issue must meet the following further criteria:

  • Initial issue size of at least S$200 million or equivalent.

  • SGX listing.

  • QDS qualified for income tax purposes: the bond issue must be "substantially arranged in Singapore" under the Income Tax (Qualifying Debt Securities) Regulations ("ITR").

  • Attribution of more than half of the gross revenues earned by banks from arranging the bond issue to Financial Sector Incentive ("FSI") banks in Singapore. According to the MAS, arranging a bond issue includes securing the mandate, originating and structuring the bond issue, preparing the offering circular and related transaction documents, and distributing and selling the bonds.

  • Minimum non-redeemable bond tenor of three years, except standard early termination clauses permitted for QDS+.

  • Unrated bonds denominated in Singapore Dollars do not qualify under the Asia Scheme.

Application: Before issuing the bonds, an issuer must appoint a lead arranging bank to diligence and determine the issue eligibility under the Asia Scheme in consultation with the MAS. The appointed lead manager must be an FSI company in Singapore. After the bond issue, the appointed lead arranger must submit a completed application form to the MAS on behalf of the qualifying issuer, with relevant invoices for reimbursement of eligible expenses, within three months after the issue date.

SGD Credit Rating Grant Scheme

The SGD Rating Scheme is valid for five years from 1 April 2017 to 31 March 2022. For qualifying issuers of Singapore Dollar denominated bonds, it funds 100% of the credit rating fees charged by S&P, Moody’s or Fitch for an issuer rating, debt programme rating and/or a bond issue rating, subject to an aggregate cap of S$400,000 per qualifying issuer. There is no limit on the number of times an issuer can avail of this grant subject to the cap. Expenses may be incurred before a qualifying bond issue and are eligible if incurred during the funding period of the scheme. Recurring fees such as annual maintenance fees are not covered by the SGD Rating Scheme.

Qualifying issuer: All corporates and non-bank financial institutions such as policy banks that are unrated prior to the funding period under the SGD Rating Scheme are "qualifying issuers". An issuer with a confidential rating or published ratings only from a rating agency other than S&P, Moody’s and Fitch will be considered unrated under the SGD Rating Scheme. Institutions with a deposit-taking licence or which are licensed or regulated as a bank are not eligible under the SGD Rating Scheme. Singapore statutory boards, supra-nationals, sovereign or sovereign-guaranteed entities are also not eligible.

Qualifying issue: To be eligible under the SGD Rating Scheme, the bond issue must meet the following further criteria:

  • SGX listing.

  • Bonds issued before the end of the funding period. Bonds issued before the start of the funding period are eligible if they are outstanding at the date of the application under the scheme.

  • QDS for income tax purposes: the bond issuance must be "substantially arranged in Singapore" under the ITR.

  • Minimum non-redeemable bond tenor of three years, except standard early termination clauses permitted for QDS+.

  • Public rating by S&P, Moody’s or Fitch. There is no required minimum credit rating.

As mentioned above, an issuer cannot avail of the SGD Rating Scheme if it has benefitted from the Asia Scheme in respect of the same bond issue and vice versa.

Application: Qualifying issuers must submit an application to the MAS, with invoices for reimbursement of eligible expenses, within three months after the rating of the qualifying issue is published.

Green Bond Grant Scheme

To meet the demands of an expanding pool of socially responsible investors, the MAS introduced the Green Scheme, which is available for three years from 1 June 2017 to 31 May 2020. Issuers may apply for a cash grant of up to S$100,000 to offset costs for obtaining an independent review of bond structures to assess project evaluation/selection process, management and use of proceeds to ensure that the bond proceeds only fund environmentally beneficial projects.

Qualifying criteria: All corporates and financial institutions except for sovereign entities are “qualifying issuers”. All qualifying issuers may apply for grants under the Green Scheme for different green bond issues. The key eligibility criteria include:

  • SGX listing.

  • Minimum issue size of S$200 million or equivalent.

  • QDS for income tax purposes: the bond issue must be “substantially arranged in Singapore” under the ITR.

  • Attribution of more than half of the gross revenues earned by banks from arranging the bond issue to FSI banks in Singapore.

  • Minimum non-redeemable bond tenor of three years, except standard early termination clauses permitted for QDS.

  • Independent external review or rating done by S&P, Moody’s or Fitch based on internationally recognised green bond standards such as Green Bond Principles and Climate Bonds Standards or under the green bond principles of one of the international rating agencies referred to above. More than half of the gross revenue from such external review or rating must be attributable to Singapore-based service providers. External review may be a second opinion, verification or certification done to support the green bond status.

Application: The administrative application process for the Green Scheme is the same as for the Asia Scheme.

Looking Ahead

The three schemes discussed in this bulletin reflect the MAS’s efforts to strengthen the Asian bond market and attract international issuers to use Singapore as a base to tap the international capital markets. The eligibility criteria for each scheme are not onerous so the schemes present attractive incentives for issuers to issue through Singapore. Many issuers seeking to raise debt in the international capital markets are likely to qualify for funding under these schemes.

The MAS has indicated it would like to encourage issuers to issue rated bonds in the Singapore bond market as credit ratings improve general market transparency and provide independent and comparable assessments of credit worthiness of issuers. Accordingly, the Asia Scheme offers a larger grant of S$400,000 for rated issues, and a separate SGD Rating Scheme is specifically designed for rated Singapore Dollar denominated bonds.

These three schemes have generated interest from issuers in emerging markets. Bond market participants are keenly monitoring developments and the market impact of this positive step taken by the MAS to make Singapore an even more popular destination for bond issuers.

Co-authored by Eugene Lee at Prolegis LLC