Bank of Communications (BoCom), one of China’s largest banks, has issued a $300 million digital bond in Hong Kong, becoming among the first lenders from mainland China to explore blockchain bonds in the city-state.
Meanwhile, the tokenization arms race is heating up. Singapore recently launched a digital bond grants scheme similar to Hong Kong’s as the two financial hubs vie for the spot of China’s digital finance hub.
Bank of Communications issues $300 million digital bond
BoCom issued the unsecured three-year digital bond on Orion, the permissioned blockchain network developed by HSBC (NASDAQ: HSBC). It will rely on a Secured Overnight Financing Rate (SOFR) floating rate; the bank says it’s the first floating rate digital bond issued on Orion.
A floating-rate bond means that the interest the investors receive fluctuates over time according to a reference rate—this time, it’s the SOFR rate.
London-based law firms Linklaters and A&O Shearman advised BoCom on the issuance. The two firms described the bond as the first digitally native issuance by a bank from the mainland. However, some outlets report that the cash transactions will not be conducted on-chain.
Additionally, Moody’s (NASDAQ: MCO), which assigned the bond an A2 rating, noted that “settlement of notes and the payment of principal and interest are conducted in fiat currency outside the blockchain.”
As a digitally native bond, it would have been the first by a Chinese bank. However, it’s not the first blockchain-based bond by a Chinese lender; five years ago, the Bank of China issued $2.8 billion in bonds on a blockchain platform. The bank, which is the fourth-largest in the world, noted that it was utilizing blockchain for “on-chain interaction and deposit of key information and documents.”
In its rating, Moody’s added that the permissioned and private nature of the Orion blockchain makes it easier to address any malfunctions. The network has also been used in dozens of other high-profile issuances, making it a trusted choice. Most recently, it was used to issue a $190 million digital bond by the Chinese state-owned holding company Zhuhai Huafa Group.
Additionally, the Central Moneymarkets Unit (CMU), which is operated by the Hong Kong Monetary Authority (HKMA), keeps a backup register of investor holdings, which could be relied on even if Orion failed, Moody’s added.
The integration with the CMU has become one of the important hallmarks of bonds issued on Orion. It expands the investor base, allowing even those not conversant with blockchain to invest via conventional channels access to the blockchain bonds.
Singapore launches digital bond grants scheme
Singapore and Hong Kong have been rivals in the financial services space for decades, with both competing to be Asia’s ultimate financial center. However, on tokenization, Hong Kong has taken a clear lead, with enabling laws, private-public sector partnerships, and government assistance cementing its position.
Singapore is out to change this, recently launching a digital bonds grants scheme to promote the sector’s growth. The scheme closely mirrors a program launched by the Hong Kong central bank last November.
The Monetary Authority of Singapore (MAS) launched the Global-Asia Digital Bond Grant Scheme (G-ADBGS) last week to “catalyse the issuance and broader market adoption of digital bonds in Singapore.”
To qualify for the grant, the issuer must be a non-bank entity based in Asia. The bond must also be issued in one of four currencies: USD, Euro, Yen, or the local dollar, SGD. Hong Kong, on the other hand, doesn’t impose these restrictions.
Additionally, to qualify for the Singapore grant, the bond must be issued and listed locally and have a minimum issuance size of $74 million (where the issuance is over $150 million, it must be digitally native). Hong Kong requires the minimum issuance to be at least $130 million but has no requirement for digitally native issuances despite the size.
The other key difference between the two jurisdictions is that in Hong Kong, the issuer must have five or more investors in the bond, who must not be associated with the issuer; Singapore has no such requirements.
While Singapore has lagged behind Hong Kong in the tokenization arena, its central bank has been laying the foundation for the sector to explode. Its landmark initiative is Project Guardian, whose members include Deutsche Bank (NASDAQ: DB), Ant Group, Moody’s, JP Morgan (NASDAQ: JPM), HSBC, S&P Global (NASDAQ: SPGI), UBS (NASDAQ: UBS), and Fidelity (NASDAQ: FNCMX).
It’s expected that these members will now be encouraged to issue digital bonds under the new scheme, which would create an ecosystem that could easily rival Hong Kong’s in a few years.
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