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Nikkei Markets

Wilmar-OCBC deal pushes green financing in Singapore

Interest rate pegged to sustainability targets

The smog from fires in Indonesia has drifted across borders, blanketing cities in Malaysia, Singapore and southern Thailand and affecting neighborly ties.   © Reuters

SINGAPORE (Nikkei Markets) -- Agribusiness company Wilmar International has signed a second loan that links interest rates to its sustainability performance, this time with Singapore bank Oversea-Chinese Banking Corp.

The two companies described it as the largest such bilateral deal in the city-state.

The arrangement comes as Singapore pushes to become a hub for green financing and as the region's palm-oil producers try to move past their notorious reputation for violating the environment and communities.

OCBC said it would peg the interest rate on Wilmar's existing $200-million revolving credit facility to sustainability targets that would be monitored annually by Sustainalytics, a global environmental, social and governance ratings firm.

The interest rate will be reduced on a tiered basis as the targets are met, the two companies said in a statement.

Wilmar's first "green" loan was from Dutch bank ING in November last year.

In March, commodities trader Olam, which also produces palm oil in Africa, announced a three-year sustainability-linked loan for a total of $500 million with multiple banks. Olam said it was the first such club loan in Asia.

While palm oil is big business in the region - Indonesia and Malaysia are the world's two largest producers of the commodity - the industry has been tarnished by allegations of rampant burning of forests to clear land and labor abuse.

The smog from fires in Indonesia has drifted across borders, blanketing cities in Malaysia, Singapore and southern Thailand and affecting neighborly ties.

Such incidents have not only increased the pressure for sustainable practices on the part of companies but also raised awareness of the role that lenders play in the process.

OCBC and Wilmar said the latest deal builds on the guidelines of the Association of Banks in Singapore for promoting sustainable and responsible financing in the city-state. Those include a stipulation that member banks require their palm oil, pulp and paper clients to manage haze and fire risks.

Singapore has also launched other measures as it aims to improve sustainable practices and boost green financing.

Singapore Exchange now requires listed companies to publish a sustainability report explaining their practices at least once a year.

Last year, the Monetary Authority of Singapore announced a grant program of up to S$100,000 ($74,828) per issuance to help defray the additional costs for external reviews for green bonds.

Singapore builder City Developments issued the city-state's first green bond shortly thereafter, followed by DBS Group Holdings, the largest of Singapore's three big banks. Foreign entities that have issued and listed such bonds in Singapore include Canadian insurer Manulife Financial.

According to Climate Bonds Initiative, a non-profit, global green bonds issuance stood at $160.2 billion in 2017, with 2018's total expected to rise to $250 billion. Within Asia, China issued $36.4 billion in total green bonds last year, while India issued a total of $4.3 billion.

Earlier this week, the International Finance Corp., a member of the World Bank, and the Monetary Authority of Singapore signed an agreement to boost the growth of green bond markets in Asia by raising awareness and promoting standards.

--Leslie Shaffer

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