UOB and digital securities exchange ADDX announced the completion of digitization and digital custody of the inaugural sustainability-linked bond recently launched by Sembcorp Industries.
The initiative comes amid a rise in the use of digital securities to enhance the efficiency of bonds and other fixed income instruments.
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Oi Yee Choo, Chief Commercial Officer of ADDX discusses a new partnership with UOB in an interview with Invezz.
Q: UOB and digital securities exchange ADDX have partnered to achieve faster processing and management of digital bonds. Do digital bonds have the status of securities? If so, do you anticipate regulation issues?
Yes, digital bonds by ADDX do have the status of securities. ADDX is regulated by the Monetary Authority of Singapore (MAS) as a digital securities exchange. We have MAS licenses for the issuance, custody and secondary trading of digital securities, also known as security tokens.
MAS takes the position that digital securities and traditional securities will be regulated in the same way under Singapore’s existing securities legislation – the Securities and Futures Act. (See MAS announcement here.)
Issuers and investors that work with ADDX therefore have the assurance that the digital securities or tokens ADDX issues across various asset classes – including digital bonds, equity, fund units and structured products – are fully regulated.
Q: What are the advantages of investing in digital bonds over regular ones? Do they have any disadvantages?
Generally, digital bonds are more efficient to administer and can be offered in fractional sizes. This helps individual accredited investors to gain access to otherwise out-of-reach bonds and to take up a calibrated position that is appropriate to their portfolios. ADDX is able to reduce the minimum subscription size for digital bonds from around US$200,000 to around US$20,000.
Digital bonds – and, more broadly, digital securities – are a relatively new space, having emerged in the last three years or so. Some investors may be less familiar with these products and may need to take the time to read up about them.
Q: Are digital bonds a good store of value, like Bitcoin seems to have become?
As a store of value, digital bonds are no different from traditional bonds. The value of any bond is derived from the credit-worthiness of the company issuing it.
Q: Sustainability-linked bonds seem like a very noble initiative, which shows care for the environment. How likely are bond issuers to meet their target?
Issuers of sustainability-linked bonds generally set targets that are meaningful and achievable. The bond is a way for the issuer to commit to the target publicly.
Q: Sembcorp issues a sustainability-linked bond, through which it has committed to a target of reducing its greenhouse gas emissions intensity to 0.40 tonnes of carbon dioxide equivalent per megawatt hour or lower by 31 December 2025. If the target is not met, the bond’s coupon rate will step up by 0.25 percentage points per annum. Does this mean the income an investor can expect to receive while holding the bond will increase by 0.25 percentage points a year if Sembcorp doesn’t meet its target? Can you elaborate on this a bit more please?
Yes, your reading is correct. For this bond, if the sustainability target is not met by the issuer, the coupon rate increases by 0.25 percentage points, from the first coupon payment after 1 April 2026. This means a higher yield for investors if the target is not met.
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