Singapore/sea levels: levies for levees via bonds for bunds

Sovereign bonds updates

Climate change threatens Singapore. About a third of the city state lies less than 5m above the mean sea level. Globally, the sea is rising at about 3mm a year. An infrastructure bond, billed as the first of its kind, offers protection against flooding alongside stable returns for investors.

The central bank will issue a total of $1.9bn in Singapore Government Securities to fund big infrastructure projects, including tidal walls and new subway lines.

Singapore’s canal systems have invited regular flash floods. Restoration projects to stabilise parts of the coastline started in 2010. The city is now investing in fresh sea defences. Reclamation schemes will build new islands high enough to be out of reach. The government expects to spend more than $74bn in the next few years on protecting Singapore from rising seas. 

These 30-year bonds are likely to be the first of many helping to cover the costs. The issue comes at an opportune time. Demand for safe assets is rising as bondholders flee risks from Chinese property developer Evergrande’s liquidity crisis.

Political risk is low in Singapore, one of just a few countries with a sovereign credit rating of AAA. The government can be expected to service interest through a scheduled increase in the national goods and services tax. Singapore’s fiscal reserves, despite four stimulus packages last year, remain healthy and are estimated to be as high as 300 per cent of gross domestic product, according to Fitch.

Among bonds issued by AAA rated nations, Singapore’s government securities bonds offer the highest yield at about 1.9 per cent. The market is reasonably liquid. The total outstanding amount has grown nearly fivefold in the past decade to $145bn last year.

Expect pension funds and life insurers to join eager retail investors bidding for the new bonds next Tuesday. Local investors will have the satisfaction of doing their patriotic duty in helping protect Singapore from submersion. Offerings pegged exclusively to coastal defence cannot be far behind.

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