In early 2022, anticipated interest rate hikes resulted in a spate of financings and refinancings in Singapore, with borrowers keen to lock in favourable rates in an increasingly optimistic business environment as the country exited the worst of the COVID-19 pandemic. The start of the rate hikes led to a more cautious view generally but global developments – such as the development of forward-looking term rates based on risk-free benchmarks and the increased push for green and sustainability considerations in financing – have continued to push growth in the loan market. Green and sustainability-linked financings, in particular, have been a strong feature of the Singapore loan market with loan structures expanded from the initial real estate industry segments to include other industry segments. Lenders and borrowers have needed to navigate increasing regulation around next-generation and new technology business structures, such as the ever-expanding businesses under the fintech umbrella as well as sanctions developments, but these have generally paled in comparison with the impact of COVID-19 over 2020 and 2021.

The recognition in 2020 that COVID-19 would be a global pandemic initiated a rethink of loan terms which previously may have only considered a pandemic as a hypothetical. While global, the impact was felt more in some industries than others. Borrowers in particularly sensitive industries sought to introduce COVID-19 exclusions from general trigger events, while also having to balance this against questions around issues such as debt servicing ability, enhanced financial and business due diligence and requests for representations and undertakings on business contingency plans, disaster recovery and supply chains. COVID-19 also brought about discussions around pandemic-related insurances covering business interruption, supply chain disruptions and political risk. Deferrals and extensions were negotiated where possible as a result of the fundamental change in revenue generation and delays during the pandemic, but not all businesses survived.

With the current outlook that the worst of the pandemic should now be behind us, COVID-19 specific terms will increasingly be a thing of the past although sensitivity to global events may remain at the back of everyone’s mind (and models) with much of the economy, such as supply chains, still playing catch-up even after the recent reopening. 

Consistent with the past years, there has been a slow but gradual uptick in adoption of unitranche and term loan B loan structures. While relatively rare in comparison to senior debt, a number of significant Asian brand names accessing term loan B markets for capital may pave the way for a greater push in Asia for high-yield structures.

Mezzanine and second lien financings continue to feature, particularly to address funding gaps which arose during or as a result of the pandemic. In Singapore, mezzanine and second lien debt, ultimately backed by real estate assets, remain popular among lenders and investors.

Alternative credit providers have flourished in Asia in recent years, particularly to provide loans not just for traditionally under-banked borrowers but also new industry borrowers who may not be finding it easy to access bank debt. These have ranged from P2P lending structures, to private debt providers offering terms akin to senior debt but focusing on emerging Asian economy borrowers with less access to traditional bank debt capital. Both inbound and outbound alternative credit have seen significant activity.

A key development over the past couple of years has been growing recognition of the need for sustainability, and the role that financing plays in sustainability. In particular, the adoption of green and sustainability-linked loan structures in Singapore has moved from an initial uptake and recognition centred around the real estate segment to an ambitious proliferation across the economy, from manufacturing to logistics and beyond. Loan structures have also had to move beyond products built around traditional industries based on physical goods and services to adapt to new digital economy businesses, their financing needs and structuring credit around these new models of doing business.

Taxes

In a two-stage process, goods and services tax in Singapore will increase from 7% to 8% from 1 January 2023, and to 9% from 1 January 2024; this may affect certain fees for loan transactions.

Term SOFR

Increased adoption of Term SOFR (the "secured overnight financing rate") and the development of similar forward-looking equivalents for other currencies will likely provide some certainty in a loan market which has had to get to terms with backward-looking risk-free rates in recent years. Unlike the transition to risk-free rates, we may see more accelerated re-paperings with the introduction of traditionally familiar forward-looking mechanics.

Digital Banks

While not entirely an alternative credit provider, the entry of digital banks into Singapore could introduce competition in, and increased accessibility to, the loan market, initially at the small-to-medium enterprise level. Their full impact remains to be seen.

Green and Sustainable Financing

With respect to green and sustainability-linked financing, a number of countries and regions, including Singapore and the other ASEAN countries, are developing their own taxonomies of what constitutes green, which will help to curb green-washing, thus providing impetus to the credibility and, consequently, the development of green and sustainable financing products.

As mentioned in 1.6 Legal, Tax, Regulatory or Other Developments, there has been a widespread push for, and adoption of, green and sustainability-linked loan structures. These have taken place across various borrower segments, from real estate and projects including renewables, to manufacturing and services. Targets have become increasingly ambitious and tailored with an aim to using financing to promote meaningful developments, especially in areas where a borrower or industry may have underperformed in the past. In Singapore, access to such loan structures has not been restricted to large corporates, with products also being promulgated at retail and small-to-medium enterprise segments in recognition that every person has a part to play in sustainability efforts. The Monetary Authority of Singapore has also been providing impetus to sustainability under the framework of its Green Finance Action Plan, with a view to strengthening the resilience of the financial sector to climate and environmental risks, as well as to developing Singapore into a vibrant green finance hub. Beyond just green and sustainability-linked categorisations, there is an increased awareness of the role that finance can play in enabling goals such as the transition to a circular economy and decarbonisation, and in this regard, Singapore lenders have been pushing the envelope with greater access to products specifically tailored to accelerating the achievement of such aims, as well as commitments to ensuring that financing activity in general moves forward towards such goals.

In Singapore, banks are generally required to be licensed under the Banking Act 1970 to operate banking and other businesses in Singapore permitted under its licence. Such licensed banks and other categories (eg, finance companies) are excluded from the Moneylenders Act 2008, which otherwise generally applies to regulating the business of moneylending in Singapore, unless exempted. Excluded moneylenders include any person who lends money solely to corporations.

See 2.1 Authorisation to Provide Financing to a Company.

While there are no general restrictions on the granting of security or guarantees to foreign lenders, the terms of certain private agreements may impose conditions or restrictions. For example, taking security over industrial land leased from the Jurong Town Corporation (or over such leases) may be subject to a consent requirement from the Jurong Town Corporation if security is granted to persons that are not financial institutions permitted by the laws of Singapore to lend on such security.

While there is exchange control legislation in the Exchange Control Act 1953, the Monetary Authority of Singapore Notice 754 exempts all persons from the provisions, obligations, etc, imposed under various sections of the Exchange Control Act 1953.

The use of proceeds is generally regulated by contract and is largely unrestricted. Some general restrictions against illegal purposes include use of the proceeds in breach of sanctions, anti-terrorism financing and anti-money laundering rules. Another important restriction would be financial assistance rules which prohibit a public company or a subsidiary of a public company in Singapore from taking financing to assist the acquisition of its shares or shares in its holding company. If the purpose of the loan or the loan itself was illegal or prohibited, it renders the loan unenforceable and there would generally be no recovery other than on a restitutionary basis under very limited and strict conditions (as set out in Ochroid Trading Ltd v Chua Siok Lui).

Agency and trust concepts are recognised in Singapore.

Loan transfers are primarily conducted by way of novation, and syndicated facilities would typically have a form of transfer certificate included to effect novations of debt. A secured syndicated facility would typically have a security agent or security trustee holding the benefit of such security for the pool of syndicated lenders. Other transfer mechanics include those common to other jurisdictions such as risk- and other sub-participation mechanics.

Debt buy-back by the borrower or sponsor is generally regulated by contract. Loan documentation has seen an increased adoption of either an outright prohibition against sponsor buy-backs or disenfranchisement of sponsor-affiliated lenders, with an increased presence of both sponsor-affiliated lenders and sponsor buy-backs; the latter featuring also as part of certain debt restructurings especially in recently beleaguered industries where conventional lenders have reduced their exposure.

“Certain funds” provisions are common for public acquisition finance transactions in Singapore and are also adopted in the financing of the acquisition of private companies in Singapore in particular cases. Long-form documentation is commonly used for acquisition finance transactions (even at the term sheet stage, with long-form term sheets commonly prepared). Other than for the usual security registration requirements for Singapore-incorporated security providers, facility agreements for acquisition finance transactions are not required to be filed in Singapore where the target is Singapore-incorporated.

Singapore does not generally subject payments of principal to withholding tax. Payments of (or in the nature of) interest or other payments in connection with the loan may be subject to withholding tax under the Income Tax Act 1947 depending on the relevant jurisdictions.

Security over shares and real property are generally subject to stamp duty of up to SGD500 in Singapore. Fees may be charged by government authorities for security registrations such as registrations with the Accounting and Corporate Regulatory Authority and the Singapore Land Authority; these fees are generally nominal.

While the Moneylenders Act 2008 does impose maximum interest (ie, a nominal interest rate of 4% per month), banks and other excluded lenders are not subject to such restriction. Contractual provisions providing for the payment of additional or an increased rate of interest may not be recoverable if they amount to a penalty under Singapore law, and the Supreme Court Practice Directions generally provided that every judgment debt shall, unless otherwise agreed between the parties, carry interest at the rate of 5.33% per annum, or at such other rate as the Chief Justice may from time to time direct, or at such rate not exceeding that rate as the Singapore court directs. With respect to penalty considerations, an 18% default interest rate was held to be a penalty in Hong Leong Finance Ltd v Tan Gin Huay.

Assets

Real estate

One of the most common assets taken as security in Singapore is real estate. Where separate title has been issued for real estate, a mortgage over such real estate can be taken as security in the form prescribed by the Singapore Land Authority. A real estate mortgage will need to be stamped for up to SGD500 in Singapore within 14 days of execution and delivered for registration to the Singapore Land Authority with the title documents in relation to that property and payment of a nominal registration fee to the Singapore Land Authority. Failure to have the document stamped renders it inadmissible in court, and late stamping is subject to financial penalties.

Shares

Share security over shares issued by a Singapore-incorporated company is also common. Customary deliverables and perfection steps differ depending on whether those shares are issued by a private or public Singapore-incorporated company and, in the latter case, may differ further depending on how those shares are held. Share security is subject to stamping of up to SGD500 in Singapore.

Floating charges

Singapore also permits floating charges over all present and future assets of a Singapore-incorporated company; such security would commonly be taken by way of a general debenture. This would usually be drafted to cover all assets, including shares and real estate, and would similarly need to be stamped for up to SGD500 in Singapore.

Registration of Securities

Particulars of security created by a Singapore-incorporated company are generally registrable in Singapore with the Accounting and Corporate Regulatory Authority for a nominal fee of SGD60. The Companies Act 1967 prescribes categories of registrable security but these are generally very broad. Registration needs to be completed within 30 days of execution if executed in Singapore. Failure to register results in such security being void against the liquidator and creditors of that security provider.

Stamping and registration of particulars of security in Singapore are generally conducted through the online systems of the relevant government authority and are fairly instantaneous. As a matter of practice, however, parties generally buffer one to three business days to complete these, to account for contingencies and disruptions.

Singapore permits floating charges over all present and future assets of a Singapore-incorporated company.

Subject to considerations of corporate benefit, particularly in the case of upstream and cross-stream guarantees, it is not unusual for lenders to take such guarantees. Other limitations include the financial assistance rules, mentioned in 3.4 Restrictions on the Borrower’s Use of Proceeds,in relation to provision of guarantees by a Singapore-incorporated public target or its subsidiaries supporting the acquisition of shares in itself or its subsidiaries; restrictions in the Companies Act 1967 on the giving of guarantees covering indebtedness of corporate entities not within the same group structure; as well as any restrictions imposed by a company’s constitutive documents or private contracts. If guarantors are not within the same group structure (ie, they do not share the same holding company), parties will also need to consider whether the guarantee structure contravenes the Companies Act 1967 prohibitions on the granting of guarantees by a company to third parties that are connected with the directors of that company.

Financial assistance restrictions apply where the target is a Singapore-incorporated public company or subsidiary thereof. The Companies Act 1967 provides for several whitewash methods and exclusions. The most common whitewash methods include a long-form whitewash which takes at least a month in practice and involves public notifications; and one of the short-form whitewash methods which requires statutory solvency statements from the directors of the company providing financial assistance.

Other than the above, greater diligence is usually required for regulated security providers. Licence terms and legislation may prohibit or set conditions on the granting of security or guarantees. For example, the Securities and Futures (Licensing and Conduct of Business) Regulations set conditions on the creation of security by a capital markets services licence holder over its customer’s assets. Housing developer licences may also contain restrictions over liabilities, which may be secured by a mortgage over the housing property to be developed. Where contracts and contractual proceeds are a key component of a security package, contractual restrictions against assignment and creation of security are critical. In such cases, diligence and the actions required to obtain consent where possible become significant (but not always insurmountable) hurdles in the feasibility assessment of such security.

Singapore law-governed security is typically released by a deed of release or deed of discharge, save where security was taken in a prescribed statutory form (eg, a Singapore statutory mortgage), where local authorities may similarly prescribe statutory forms of release.

The rules of priority of competing security interests in Singapore are complex. Between the same type of registered security interests, the security interest created first in time generally has priority. This is then complicated by priority between different types of security interests; for example, a perfected legal assignment would generally take priority over an unperfected equitable assignment, and floating charges rank behind fixed charges. Contractual subordination of claims is a common contractual structure adopted in Singapore law financings where senior creditors, subordinated creditors and the borrower enter into a contractual subordination deed setting out the relevant priorities.

Typically, Singapore law-governed security documents will provide that a secured lender can enforce its collateral upon the occurrence of a trigger event; this is usually either an "event of default" or an "acceleration event". Initial and usual enforcement remedies are primarily self-help (eg, letters of demand, appointments of private receivers where contractually provided) with court processes (eg, winding-up, injunctions, court-appointed receivers) also available to supplement such self-help remedies. Insolvency and restructuring-related processes could trigger moratoria on enforcement, and insolvency legislation also limits enforcement of certain contracts solely by virtue of insolvency (ie, restrictions on ipso facto clauses); these are further detailed in 7.2 Impact of Insolvency Processes.

The choice of foreign law to govern contracts is generally upheld by Singapore courts, but would not be recognised if the choice of law was not bona fide and legal, or if there were reasons for avoiding the choice of law on the grounds of public policy. Singapore has passed the Choice of Court Agreements Act 2016 to give effect to the Convention on Choice of Court Agreements. This provides a statutory framework for recognising and upholding exclusive choice of court agreements designating the courts of contracting states. Contractual waivers of immunity are frequently included in Singapore law-governed finance documents.

The Choice of Court Agreements Act 2016 also provides the statutory framework for recognising and enforcing judgments of the foreign courts of other similarly contracting states designated in exclusive choice of court agreements, subject to the exceptions in the Convention on Choice of Court Agreements. This is supplemented by prior legislation such as the Reciprocal Enforcement of Commonwealth Judgments Act 1921 and the Reciprocal Enforcement of Foreign Judgments Act 1959 which recognises certain foreign judgments from the specified foreign jurisdictions, which may not have been covered by the Choice of Court Agreements Act 2016. For international arbitral awards, the International Arbitration Act 1994 gives effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and provides that the relevant arbitral awards may be enforced and judgment entered with the permission of the court.

There are generally no restrictions requiring a lender to be authorised or qualified to carry on business in Singapore solely to enforce its rights under a valid loan agreement or security agreement.

Rescue and reorganisation procedures in Singapore include the following.

• Schemes of arrangement. This is a statutory restructuring process whereby a company and its creditors seek to agree on a restructuring scheme to be court-sanctioned and eventually approved. The Insolvency, Restructuring and Dissolution Act 2018 introduced new features such as cram-down provisions to empower the court to approve schemes in certain cases, despite dissenting classes of creditors and pre-packaged restructuring plans, without the need to convene creditor meetings.
• Judicial management. This is a restructuring option similar to the English administration regime. Judicial management in Singapore is intended to rehabilitate a company where liquidation or winding-up would be less advantageous. The Insolvency, Restructuring and Dissolution Act 2018 introduced changes to allow foreign companies with a substantial connection to Singapore to apply for judicial management and also to limit a secured creditor’s right to veto judicial management orders.

Both options feature statutory moratoria on debt enforcement in order to give the company breathing space while it proceeds with the reorganisation process.

The Insolvency, Restructuring and Dissolution Act 2018 also introduced the possibility for distressed companies to obtain fresh finance while undergoing reorganisation. A distressed company can make an application to the court for an order granting super-priority status to debts arising from the rescue financing; such orders could include the granting of priority over all other preferential debts, or allow the creation of a security interest over existing encumbered assets and the subordination of any existing security interests.

In this connection, the court has also approved the “roll-up” of a rescue lender’s pre-existing debt into a super-priority debt. This is achieved through applying a portion of the rescue-financing proceeds towards repayment of the rescue lender’s pre-existing debt.

The Insolvency, Restructuring and Dissolution Act 2018 provides for moratoria in certain insolvency-related situations (eg, if a Singapore-incorporated company is placed under judicial management and placed under a scheme of arrangement). Such moratoria would generally restrain proceedings and enforcement of security against that company. For a scheme of arrangement, an automatic worldwide moratorium applies for 30 days from the date that the relevant application is made.

The Insolvency, Restructuring and Dissolution Act 2018 also restricts the exercise and enforcement of ipso facto clauses in contracts which allow for termination, acceleration, etc, by reason of insolvency or commencement of insolvency proceedings. Certain specified contracts are excluded from the ambit of the restriction. However, there is no broad exclusion for all types of loan and security agreements.

Secured creditors are generally paid in order of priority to the extent of the security. Otherwise, when a Singapore-incorporated company is wound up, certain preferential debts must be paid before all other unsecured debts. Key preferential debts include:

• the costs and expenses of the winding-up incurred by the official receiver, and any other costs and expenses of the winding-up;
• all wages or salaries;
• all amounts due for work injury under the Work Injury Compensation Act 2019;
• other specified amounts due in relation to employees (eg, specified contributions under provident funds, remuneration payable for specified leave and retrenchment benefits); and
• the amount of all tax assessed and all goods and services tax due under any written law, before commencement of the winding-up or assessed at any time before expiration of the time fixed for the proving of debts.

Singapore does not have a concept of equitable subordination.

As mentioned in 7.2 Impact of Insolvency Processes, lenders need to tackle new considerations arising from the Insolvency, Restructuring and Dissolution Act 2018. These include the restriction on enforcement of ipso facto clauses. In certain cases, parent guarantee provisions have been bolstered in attempts to address such ipso facto restrictions and to ease and allow enforcement for parent companies falling outside the scope of the restrictions. Additional considerations from the Insolvency, Restructuring and Dissolution Act 2018 include those mentioned above, such as new moratoria provisions (eg, the automatic 30-day worldwide moratorium for schemes of arrangement), and the introduction of cram-down provisions and priorities granted to rescue financings. Coupled with the ability of foreign companies (not just Singapore-incorporated companies) to seek restructurings in Singapore under the Insolvency, Restructuring and Dissolution Act 2018, where qualified, and the adoption of the UNCITRAL Model Law on Cross‑Border Insolvency, it has becoming increasingly important, if not already absolutely crucial, for lenders to come to terms with the insolvency and restructuring regimes in Singapore.

Given Singapore’s geographical size, where debt is required for infrastructure projects in Singapore, these have been historically well funded by banks. A significant recent development includes the introduction of the Significant Infrastructure Government Loan Act 2021, which allows the Singapore government to borrow up to SGD90 billion to pay for qualifying infrastructure projects. Singapore is also a key hub for outbound project finance transactions for projects in Asia and abroad.

The three main sources of laws, regulations and guidelines for PPP transactions in Singapore are the Public Private Partnership Handbook, the Government Procurement Act 1997 and the Government Procurement Regulations 2014. With the introduction of the Significant Infrastructure Government Loan Act 2021, it remains to be seen what impact this will have on projects which may otherwise have been structured as a PPP, or whether the PPP model will continue primarily for specific projects such as existing use cases which have demonstrated success.

Approvals, taxes, fees and other charges will necessarily depend on the particular project. The governing law of finance documents for a project finance transaction would typically be Singapore law. Particulars of the security documents for a project finance transaction will generally need to be registered with the Accounting and Corporate Regulatory Authority of Singapore if entered into by a Singapore-incorporated company.

Given Singapore’s geographic characteristics, oil and gas extraction and mining are not a feature. Power plant projects would generally involve the Energy Market Authority and/or the National Environment Agency, but other government bodies may feature depending on the type of power project in question.

A project company for a project in Singapore would typically be a Singapore-incorporated company incorporated under the Companies Act 1967. Restrictions may be imposed by the relevant project documents, and qualifications and restrictions would typically have been clarified as part of the tender process. Historical PPPs have included project companies formed by a consortium of local and foreign investors.

As mentioned in 8.1 Introduction to Project Finance, given Singapore’s geographical size, where debt is required for infrastructure projects in Singapore, these have been historically well funded by banks.

Given Singapore’s geographic characteristics, the extraction of natural resources is not a feature.

The key regulator on broad environmental matters is the National Environment Agency and on health and safety laws, the Ministry of Manpower. Projects might also involve other regulatory bodies depending on the type of project.

Generally, the following environmental, health and safety legislation would apply broadly to projects:

• the Environmental Protection and Management Act 1999;
• the Environmental Public Health Act 1987;
• the Sewerage and Drainage Act 1999; and
• the Workplace Safety and Health Act 2006.