By Our Correspondent
Bank of Communications (BoCom), one of the largest banking institutions in China, has successfully issued a digital bond valued at $300 million in Hong Kong, positioning itself among the pioneering lenders from mainland China to venture into blockchain bonds within the city.
In parallel, the competition for tokenization is intensifying. Singapore has recently introduced a digital bond grants scheme akin to that of Hong Kong, as both financial centers strive to establish themselves as the leading digital finance hub in China.
BoCom’s unsecured three-year digital bond was issued on Orion, a permissioned blockchain network created by HSBC. This bond will utilize a floating rate based on the Secured Overnight Financing Rate (SOFR), marking it as the first floating rate digital bond to be issued on the Orion platform.
A floating-rate bond indicates that the interest payments to investors will vary over time in accordance with a reference rate, which in this case is the SOFR.
Legal counsel for BoCom during this issuance was provided by London-based firms Linklaters and A&O Shearman, who characterized the bond as the first digitally native issuance by a bank from mainland China. However, some reports indicate that cash transactions will not occur on-chain.
Furthermore, Moody’s assigned an A2 rating to the bond, clarifying that “settlement of notes and the payment of principal and interest are conducted in fiat currency outside the blockchain.”
While this bond is considered digitally native, it is not the first blockchain-based bond issued by a Chinese bank; five years prior, the Bank of China issued $2.8 billion in bonds utilizing a blockchain platform. The Bank of China, recognized as the fourth-largest globally, stated that it was employing blockchain for “on-chain interaction and deposit of key information and documents.”
Moody’s noted in its assessment that the permissioned and private characteristics of the Orion blockchain facilitate the resolution of any potential issues. The network has been utilized in numerous prominent issuances, establishing it as a reliable option. Most recently, it facilitated the issuance of a $190 million digital bond by Zhuhai Huafa Group, a state-owned enterprise in China.
Furthermore, the Central Moneymarkets Unit (CMU), managed by the Hong Kong Monetary Authority (HKMA), maintains a backup register of investor holdings, which can be accessed in the event of a failure of the Orion system, as highlighted by Moody’s.
The collaboration with the CMU has emerged as a significant feature of bonds issued on the Orion platform. This partnership broadens the investor base, enabling individuals unfamiliar with blockchain technology to invest in blockchain bonds through traditional channels.
