Singapore makes pitch as Asia bond hub with Euroclear tie-up

Singapore’s bourse will set up a distribution link with one of the world’s largest securities depositories in an attempt to lure global investors to its bond market, as its core equities business comes under pressure from regional rivals.

SGX, which operates the city’s securities exchange, said on Thursday it would launch a structure to make it easier for investors to buy bonds issued in the Asian city-state using assets held at Euroclear in Belgium.

The launch of the so-called Orchid bonds — named after Singapore’s national flower — comes as SGX faces competition in other asset classes from rivals such as Hong Kong, which has drawn a steady stream of multibillion stock listings by Chinese tech groups. Hong Kong’s bourse operator also snatched SGX’s derivatives licensing agreements with MSCI, the index provider, last year.

Euroclear, which holds securities and settles deals on behalf of investors, is a linchpin in the daily operation of financial markets. Last year, it settled nearly €900tn in securities deals and held €32.8tn of assets for clients as of the end of 2020.

€900tn


Value of securities deals settled by Euroclear in 2020

International investors will be able to use assets held at Brussels-based Euroclear to buy bonds issued in Singapore under the new link. Previously, investors needed to set up an account at a securities depository in Singapore to do so, splitting their funds and slowing down settlement times.

Orchid bonds will initially be issued by Singaporean borrowers, with the first deal set to take place in 2021. But the exchange and Euroclear plan to extend the structure to cover issuers across south-east Asia.

SGX is seeking to position itself as a hub for investors to trade bonds, foreign exchange, commodities and derivatives after a string of delistings and low trading volumes squeezed its equity-trading core. Singapore is also accelerating plans to become the first large bourse in Asia to list special purpose acquisition companies, or Spacs.

Kelvin Wong, a market analyst at trading platform CMC Markets, said the new bond structure is a chance for SGX to “potentially increase its revenue flow away from [the] cash equity trading business”. Deepening Singapore’s relatively illiquid secondary bond market could help “make this product a success”, he added.

Euroclear launched similar link-ups last year with Japan and China. Bank of China earlier this month issued the debut, $500m three-year note via the structure.

Lee Beng Hong, head of fixed income, currencies and commodities at SGX, said that bonds issued in Singapore linked to sustainability targets could be among those that appeal to international investors. “That’s where the completeness of the investor ecosystem in Euroclear will greatly accelerate the process”.

Stephan Pouyat, global head of capital markets and funds services at Euroclear, said the new structure would make it easier for asset managers to include sustainable bonds issued in Singapore in global investment products.

Regional borrowers are able to issue “in a local ecosystem that they are very familiar with . . . [while reaching] international investors on the other side of the world who might wrap those bonds into an ESG ETF or ESG mutual funds in order to distribute them to their clients”, he added.