Bank of Communications Pioneers Digital Bond Issuance in Hong Kong, Fueling Tokenization Race with Singapore
The Bank of Communications (BoCom), a major Chinese lender, has issued a $300 million digital bond in Hong Kong, marking a significant step for mainland Chinese banks exploring blockchain-based finance in the city-state. This issuance, facilitated on HSBC’s permissioned blockchain platform, Orion, represents a notable advancement in the financial sector’s adoption of digital technologies. While not the first blockchain-related bond from a Chinese institution, it underscores the growing interest in leveraging blockchain for enhanced efficiency and transparency in financial markets. The bond carries a three-year maturity and utilizes a floating rate tied to the Secured Overnight Financing Rate (SOFR), making it the first floating-rate digital bond issued on the Orion platform. This development reflects the increasing sophistication and diversification of digital bond offerings within the evolving financial landscape.
Although termed a "digitally native" bond by advising law firms Linklaters and A&O Shearman, certain aspects of the transaction, notably cash settlements and principal/interest payments, will occur off-chain. Moody’s, which assigned an A2 rating to the bond, confirmed this off-chain handling of financial flows. This distinction separates it from a fully on-chain digital bond where all transactions would be recorded and processed on the blockchain. While the Bank of China previously issued bonds leveraging blockchain technology, BoCom’s issuance stands out as a pioneering effort in this specific "digitally native" structure, albeit with some off-chain components. The utilization of a permissioned blockchain network like Orion addresses some of the scalability and control concerns associated with public blockchains, potentially streamlining processes and facilitating regulatory compliance.
Orion, a permissioned blockchain platform developed by HSBC, has gained prominence in the digital bond market, hosting several high-profile issuances. Its private and permissioned nature offers advantages in terms of manageability and control, enabling easier resolution of technical issues. Moody’s rating acknowledged this aspect, highlighting the increased resilience of the platform compared to public blockchain systems. The integration of the Central Moneymarkets Unit (CMU), operated by the Hong Kong Monetary Authority (HKMA), provides an additional layer of security by maintaining a backup register of investor holdings. This integration allows traditional investors to participate in these digital bond offerings through conventional channels, broadening the investor base and facilitating wider market adoption. The CMU’s role fosters trust and accessibility, crucial factors for attracting a diverse range of investors.
The issuance of BoCom’s digital bond fuels a growing rivalry between Singapore and Hong Kong as they compete to become the leading hub for digital finance in Asia. Hong Kong, with its supportive regulatory environment, public-private partnerships, and government initiatives, has taken an early lead in the tokenization space. Singapore, however, is aiming to close the gap with its recently launched Global-Asia Digital Bond Grant Scheme (G-ADBGS), mirroring a similar initiative introduced by Hong Kong’s central bank. This competitive landscape drives innovation and potentially benefits issuers and investors by offering more options and potentially lower costs.
The G-ADBGS aims to encourage the issuance and adoption of digital bonds in Singapore. Eligibility criteria for the grant includes being a non-bank entity based in Asia and issuing the bond in one of four specified currencies. There are also requirements regarding issuance size, local listing, and, in some cases, the bond being "digitally native." These specific conditions contrast with Hong Kong’s slightly different requirements, highlighting the different approaches each jurisdiction is taking to foster digital bond market development. While Hong Kong focuses on a broader approach with fewer restrictions, Singapore emphasizes specific criteria for grants, potentially targeting specific market segments. The different strategies reflect each jurisdiction’s regulatory philosophy and market focus.
Singapore’s ambitions in the digital asset space extend beyond the G-ADBGS. The Monetary Authority of Singapore (MAS) has been actively fostering innovation through initiatives like Project Guardian, a collaborative effort involving major financial institutions and technology companies. Project Guardian explores the potential of blockchain technology in asset tokenization and decentralized finance (DeFi). This initiative, along with the G-ADBGS, demonstrates Singapore’s proactive approach to embracing digital finance and its commitment to building a robust ecosystem for tokenized assets. The collaboration between established financial players and technology innovators within Project Guardian suggests a concerted effort to develop comprehensive and interoperable solutions for the digital asset market. The involvement of major players like Deutsche Bank, Ant Group, Moody’s, JP Morgan, HSBC, S&P Global, UBS, and Fidelity further emphasizes the significance of Singapore’s push towards establishing itself as a key player in the digital finance arena. This collaborative environment is expected to further accelerate the development and adoption of digital bonds and other tokenized assets, strengthening Singapore’s position in the global digital finance landscape.
