Home Blockchain HK breaks new ground with multi-currency ‘digitally native’ green bonds issuance

HK breaks new ground with multi-currency ‘digitally native’ green bonds issuance

Hong Kong: pushing the boundaries of digital finance again; inset: Global Government Fintech’s coverage of the HKMA’s ‘Bond Tokenisation in Hong Kong’ report in August 2023 | Credit: Andrzej (Pixabay)

Hong Kong’s government has completed an issuance of digital green bonds across four currencies in a breakthrough move involving numerous digital finance innovations.  

Authorities in the special administrative region of China undertook the first digital green bond issuance by any government globally just under 12 months ago. This new issuance has seen the successful offering of around HK$6 billion-worth (about £607m/US$767m) of two-year digital green bonds denominated in HK dollars (HK$), renminbi (RMB), US dollars (US$) and euro (EUR).

The Hong Kong Monetary Authority described the new issuance as ‘the first multi-currency digital bond offering in the world’ and also Hong Kong’s first ‘digitally native’ bond issuance. This latter aspect means that the bonds were issued and recorded directly on a digital assets platform without first being issued in traditional central securities depositories and subsequently converted into digital format.

Hong Kong financial secretary Paul Chan said the issuance – made under the Hong Kong ‘Government Green Bond Programme’, so the proceeds will finance and/or refinance projects that help to improve the environment, combat climate change and shift to a low-carbon economy – “demonstrates Hong Kong’s strengths and leadership position in combining the bond market, green and sustainable finance, as well as fintech.”

“We will continue to promote innovation and application of fintech, explore the use of new technologies to enhance the efficiency, transparency, and security of financial transactions, and foster vibrant development in various sectors of the financial market,” he said.

RELATED ARTICLE HKMA releases bond tokenisation blueprint to ‘unlock potential’ of DLT – a news story (30 August 2023) exploring a 24-page report setting out potential next steps to promote the wider use of tokenisation technology for bonds

‘Breakthroughs’ in four areas

The HKMA collaborated with the Bank for International Settlements (BIS) Innovation Hub on exploring the possibility of using blockchain for green bond issuances in 2021. A report on the second stage of the project – known as ‘Project Genesis’ – was released in October 2022. The HKMA also published a bond tokenisation ‘blueprint’ in August 2023.

The authority describes the new issuance – which used the HKMA’s Central Moneymarkets Unit (CMU) as the clearing and settlement system and HSBC Orion as the digital assets platform – as ‘further develop[ing] on the basis of Project Genesis and achiev[ing] new breakthroughs’ in four areas.

The first breakthrough field is in ‘broadening investor participation’ via existing market infrastructure. ‘Facilitated by the CMU’s external linkages, international investors have the option to access the digital green bonds via their accounts with [international depositories] Euroclear or Clearstream,’ the authority explains. ‘This broadens the bond’s investor base and enhances its liquidity, and could potentially facilitate interoperability across different digital assets platforms and traditional central securities depositories.’     

The second field is in ‘streamlining’ the issuance process by going ‘digitally native’. The Hong Kong authorities believe that eshewing the traditional issuance approach increases the degree of integration with the digital assets platform, as well as holding the potential to reduce the need for intermediaries, enhancing process efficiencies and lowering transaction costs. The tokenised green bond just under 12 months ago was first issued ‘off-platform’ and then tokenised on the platform (i.e. a ‘non-native’ issuance).

The third field is in ‘building in standardisation elements’, by adopting the International Capital Market Association (ICMA)’s ‘Bond Data Taxonomy’ (BDT), a standardised and machine-readable language developed to promote market efficiency and cross-system interoperability. The ICMA said the issuance was the first adoption of BDT by a sovereign, supranational and agency (SSA) issuer. This is also a ‘first’ for a green bond. 

The fourth field is in integrating green bond disclosures with a digital assets platform. ‘Key green bond documentation including the issuer’s green bond framework and relevant third-party review reports can be viewed on the digital assets platform, enhancing transparency and accessibility of information,’ the HKMA points out.

RELATED ARTICLE Hong Kong issues first tokenised green bond – our news story (21 February 2023) on the tokenised green bond issuance

HKMAs Yue: ‘another landmark issuance’

Hong Kong secretary for financial services and the Treasury Christopher Hui described the issuance, announced last week (7 February), as demonstrating the government’s “continuous support to innovative forms of bond issuances and green transformation”.

“We are confident that this issuance will further entrench the social awareness of sustainable development in combination with fintech and consolidate Hong Kong’s status as a leading green and sustainable finance hub,” Hui said.

HKMA chief executive Eddie Yue, meanwhile, said the authority was “delighted to bring to the market another landmark issuance”.

“We hope this issuance would promote the development of the digital securities market and encourage the wider adoption of digitalisation technology,” Yue added.

The issuance’s size is significantly bigger than the Hong Kong government’s inaugural tokenised green bond issuance, which was valued at HK$800 million (about £85m/US$102m). The bonds were priced at: HK$2 billion tranche at 3.800%; RMB 1.5 billion tranche at 2.900%; US$200 million tranche at 4.749%; and EUR 80 million tranche at 3.647%.

Six banks – HSBC, Bank of China (Hong Kong), Crédit Agricole CIB, Goldman Sachs (Asia), ICBC (Asia), UBS – and three law firms – Allen & Overy, Ashurst and Linklaters – were involved.

‘Bond Data Taxonomy’: explained

The BDT incorporates key economic terms of a bond (such as amounts, currency, maturity, interest), key dates (such as pricing, settlement), as well as other relevant information (such as governing law, relevant parties, ratings, selling restrictions) typically included within a term sheet. It incorporates existing ISO data definitions and formats ‘where relevant’.  

‘A key feature of the BDT is that it is technology agnostic and can be used both for traditional securities and digital, i.e. distributed-ledger technology (DLT)-based debt instruments,’ the ICMA noted in a press release on Hong Kong’s issuance. ‘The adoption of the BDT in [Hong Kong’s] digital green bond issuance paves the way for streamlining operational processes where bond information is stored and exchanged between different parties not only at issuance, but also during the bond’s lifecycle.’  

ICMA chief executive Bryan Pascoe described the issuance’s alignment with BDT as “mark[ing] a significant milestone to foster interoperability and facilitate scalability of DLT-based bond markets.” 

HKMA deputy chief executive Darryl Chan said the authority “looked forward to our continued collaboration with ICMA to enhance transparency and efficiency in markets.”