Vegetable oil processor Apical Group, a member of Singapore-based Royal Golden Eagle (RGE), has closed its first sustainability-linked derivative (SLD) amounting to US$550 million.

The two-year deal with MUFG Bank came after Apical in November 2022 secured a total of US$787 million in sustainability-linked loans (SLLs) from a consortium of banks, with MUFG, First Abu Dhabi Bank, National Bank of Kuwait and Chang Hwa Bank among the mandated lead arrangers and bookrunners.

The SLD will be used to partially hedge the interest rate risk of Apical’s SLLs, allowing the firm to fix the interest rate for US$550 million of the US$787 million debt for a period of two years.

The agreement is tied to the same set of key performance indicators (KPIs) under the SLLs and penalties will be incurred under the SLD in the event the KPIs are not attained.

These KPIs include raising the level of verified traceability to its plantations, increasing engagement of suppliers to promote sustainable practices and traceability, increasing the number of Roundtable on Sustainable Palm Oil (RSPO) certifications among smallholder farmers, and reducing greenhouse gas emissions through methane capture facilities.

RGE, a global group of resource-based manufacturing companies, was among the first non-property players in Singapore to secure an SLL in 2021 and the second largest borrower of SLLs in Singapore.

Last year the group raised approximately US$1.6 billion in SLLs including US$700 million under its pulp and paper business in China, Asia Symbol; US$120 million under Apical; and another US$787 million under Apical’s latest SLL to which the SLD is tied.

“We are now going one step further with the sustainability-linked derivative which imposes a second penalty on us if we do not meet the same set of KPIs for the SLLs,” says RGE president Tey Wei Lin. “Acting on a belief that ‘well done is better than well said’, we have opted for this tool that facilitates an even greater level of accountability from us and we are confident that we will continue to deliver on our commitments.”    

Nick Yee, managing director and head of global client solutions sales for Asean, India and Oceania at MUFG, says the bank leveraged its ESG financing expertise to create a bespoke structure for RGE to achieve its sustainability targets while hedging its interest rate exposure. “This collaboration demonstrates our collective sustainability commitments towards decarbonization and tackling climate change, while managing financial risks,” Yee adds.