OCBC Bank has executed Singapore’s first sustainability-linked cross-currency swap - one with Cromwell European Real Estate Investment Trust (“CEREIT”). This comes as the Bank expands its offerings of sustainable products to corporate and institutional clients under its broader sustainability drive.

The 5-year structured derivative transaction will be used to hedge the currency risk coming on the back of CEREIT’s S$100 million fixed-rate subordinated perpetual securities, which was issued in November 2021 and for which OCBC Bank was one of three lead managers. This hedge effectively allows CEREIT to convert the Singapore Dollar to Euro at a cheaper rate during the duration of the swap.

As an added incentive to help CEREIT manage their environmental impact and keep to their sustainability goals, the deal was designed such that CEREIT would enjoy better rates if they meet two green targets:

• Attain a certain rating under the Global Real Estate Sustainability Benchmark (“GRESB”), an international evaluation system for measuring the sustainability performance of property companies and real estate funds; and
• Obtain a certain number of green building certifications for properties in their portfolio each year.

These targets will be adjusted upwards by a predetermined percentage each year, in line with the Bank’s desire to motivate and support its clients to push themselves to reach higher environment, sustainability and governance (ESG) standards.

Earlier this year, OCBC closed a sustainability-linked interest rate swap with a local REIT, becoming the first Singapore bank with such an offering.  The latest cross-currency swap marks another milestone in the Bank’s journey of playing a leading role in developing the sustainable financial market, not just in Singapore but also globally. Green capital markets are relatively well integrated in Europe, and the Euro is also the global currency of choice for sustainable finance – with around half of green bonds issued worldwide in 2020 being denominated in Euro. Such offerings can help establish the Bank as a major player in the international sustainable finance scene.

Mr Kenneth Lai, OCBC Bank’s Head of Global Treasury, said, “Our latest product will give not just European companies pivoting into Asia a chance to stay committed to their sustainability goals but also our Singapore corporates who are expanding into Europe or investing into European assets. These clients can enjoy cost savings with the sustainability-linked cross-currency swap, stacked on top of the euro’s lower interest rate, while meeting their sustainability goals. The Bank will continue to expand its product offerings and customer segments in our pursuit of supporting our clients’ sustainability ambitions.”

Mr Simon Garing, Cromwell EREIT Management’s (the Manager of Cromwell European REIT) Chief Executive Officer, commented: “I am very pleased that CEREIT’s S$100 million inaugural issuance of perpetual securities includes an innovative sustainability-linked currency-swap component that we have arranged with our partners from OCBC. The sustainability component further reinforces our steadfast commitment to integrate robust sustainability standards into CEREIT’s operations. After transacting a cross-currency swap into our functional currency of Euro, the coupon in Euro provides attractive funding, further diversifying CEREIT’s capital sources enabling it to fund new acquisitions on an accretive basis.”