Who will buy Singapore's $24b infrastructure bond issue?

Life insurers and asset managers seem most excited.

Singapore is about to embark on a massive bond issuance program that will literally change the landscape. These new infrastructure bonds will be longer dated than traditional Singapore government bonds and will enable investors to lock in high quality paper for the long term.

UOB head of markets strategy Heng Koon How noted that over the years there has been consistent demand from life insurance companies and asset management companies for high quality Singapore dollar-denominated local bonds for them to invest in. The proposed Infrastructure Bonds will help provide a new set of Singapore dollar assets for them to invest in, so as to match their longer-term Singapore dollar liabilities. "The new issuing names will also provide a welcomed diverse pool of credits to choose from, other than the usual Singapore Government Bonds and various statutory board bonds like Housing Development Board (HDB) and Land Transport Authority (LTA). So the market is definitely excited about this and looking forward to the new issues."

So how much new debt will be raised in these infrastructure bonds? Singapore Budget 2018 anticipates $20b of infrastructure spending in 2018 of which $5b will be injected into the new Rail Infrastructure Fund and we know that $4b has already been ring-fenced for Changi T5 in 2015. UOB has crunched the numbers and assuming a 50:50 public-private partnership, then it is possible that the initial targets might possibly be up to $24b (2018 spending + T5 allocation) to be achieved over a number of years.

"For comparison, the average SGS annual supply between 2010 and 2017 is around $16b and the outstanding SGS issuance at the moment is about $109.4b (as of 01 February 2018). In terms of statutory board bonds, their outstanding bonds currently on the market total about $26.7b. These include, in order of amount of bonds outstanding: Housing and Development Board (HDB) at $21.8b, Land Transport Authority (LTA) at $3.5b, and Public Utilities Board at $1.4b," the bank noted.

The Singapore Budget 2018 statement lists 3 specific projects that may be funded by Infrastructure Bonds. These are the National Environment Agency which will look at borrowing to finance the upcoming Integrated Waste Management Facility, the Land Transport Authority which will also look at borrowing for upcoming projects such as the KL-Singapore High Speed Rail and the JBSingapore Rapid Transit System Link and Changi Airport Group which will look at borrowing for construction of Changi Airport Terminal 5 (T5).

"Bear in mind that the above three highlighted projects are by no means exhaustive. Furthermore, projects to be funded via bonds need not just be of “marquee” undertaking. Thus even upgrades to existing infrastructure may also be included and thereby ensuring a continuous supply of Infrastructure Bonds. Potential infrastructure spending over the next decade also include the redevelopment of different parts of Singapore e.g. Jurong Lake District, Punggol Digital District and Woodlands North Coast etc and rejuvenation of other public infrastructure in mature HDB estates," added UOB.

Desmond Teo, partner, Financial Services Tax, Ernst & Young Solutions LLP said Singapore continues to push holistically on developing the bond market with the extension of the Qualifying Debt Securities scheme and a broader array of bond product offerings through the borrowings by the agencies. "Aligned with the announcement for statutory boards borrowing for long-term projects, the extension of the QDS scheme is part of a holistic push to develop the Singapore bond market.”