MAS to raise $2.6 billion in first-ever sale of Singa bonds to finance infrastructure

An artist's impression of Loyang station on the upcoming Cross Island Line. Under Singa, the Government can borrow up to $90 billion to finance such infrastructure projects. PHOTO: LTA

SINGAPORE - Singapore's central bank intends to raise a total of $2.6 billion in the inaugural sale of bonds to fund infrastructure projects that will benefit both the current and future generations.

The size of the auction for the Singapore Government Securities (Infrastructure) bonds set for Sept 28 was issued by the Monetary Authority of Singapore (MAS) in a notice on its website on Tuesday (Sept 21).

Both institutional and retail investors can bid in the Sept 28 auction, as they do for the regular Singapore Government Securities (SGS) - now renamed as SGS (Market Development), according to MAS.

With a minimum of $1,000 cash, retail investors can subscribe the bonds through DBS/POSB, OCBC and UOB ATMs and internet banking portals, and OCBC's mobile app, though they will need an individual Central Depository (CDP) account.

The yield, or interest payments, on the bond set for maturity in Oct 2051 will be announced by MAS an hour after the Sept 28 auction and the bond will be issued for trade in secondary market on Oct 1.

This will be the first SGS bond to be issued under the Significant Infrastructure Government Loan Act (Singa) that was proposed in February and passed by Parliament in May.

The Act authorises the Government to borrow up to $90 billion over the next 15 years to finance major long-term infrastructure, including the new Cross Island and Jurong Regional MRT lines, and pumping stations and tidal walls to protect the Republic against rising sea levels.

During the debate on the law in Parliament in May, Deputy Prime Minister Heng Swee Keat, who was also Finance Minister then, said Singapore was embarking on a "generational upgrade" to its infrastructure over the next 15 years, and borrowing to pay for the major infrastructure projects will help to smooth out the hump expected in development spending.

With Singa, the money raised now will be repaid over a 30-year period via fixed semi-annual coupon payments.

Singapore has dipped into its reserves for the past two financial years to support Covid-19 support measures, which comes up to an expected $53.7 billion.

The Government will continue to issue the SGS (Market Development) bonds to develop the domestic debt market and meet Singaporeans' retirement needs through the Central Provident Fund (CPF).

There are also plans to issue the Green SGS (Infrastructure) bonds that MAS aims to kick off next year for climate change-related infrastructure.

The Government borrowed in the 1970s and 1980s to finance an increase in development expenditure required for the creation of the country's first MRT lines and Changi Airport Terminals 1 and 2. Strong GDP growth in the ensuing two decades meant that such development spending could be covered by buoyant operating surpluses instead.

The Government is required by the Constitution to keep a balanced budget over each term of office. It does not borrow to fund recurrent spending, but to finance large-scale public infrastructure.

Credit rating agency Moody's Investors Service in June said that debt servicing for SGS (Infrastructure) issuances will be met through budgetary revenue.

However, given the low interest rate environment and the plan to further expand the revenue base in coming years, including through an increase in the GST and higher excise duties on gasoline, the pivot to debt issuance will not weaken Singapore's fiscal strength.

"The commitment to avoid direct government borrowing to fund recurring expenditure will help to preserve Singapore's structurally strong fiscal position, and entail both increased revenue and expenditure restraint," the agency said.

Mr Victor Yong, UOB's interest rate strategist, said that while the launch size of S$2.6 billion will be the largest-ever for a 30-year newly-issued bond, the issuance would likely still see demand.

He said investors eagerly digested $3.1 billion of a 30-year SGS bond in January this year.

Ms Frances Cheung, rates strategist at OCBC Bank, said Singapore's AAA credit rating and the lack of long-dated government securities of similar quality worldwide will help. "Being highly-rated and not under particular supply pressure, we believe that SGS (Infrastructure) will garner decent investor interest," she said.

Singapore is one of the nine countries in the world with the highest rating by the top three rating agencies - Moody's, S&P and Fitch.

Given the demand for high-quality bonds, Singapore's 30-year SGS have risen this year above US Treasury bills of the same tenor, making them more attractive for investors, said DBS Bank's rate strategist Eugene Leow.

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