HSBC has issued a HK$1 billion (US$ 128m) one year digital note using DLT. It used a similar setup to the sovereign Hong Kong US$756 million digital bond issuance earlier this year. Hence, the latest digital note was issued on the HSBC Orion DLT, with the local central securities depository (CSD), the CMU, as the platform operator.
It is the first digital note listed on the Hong Kong Stock Exchange (HKEX) by a Hong Kong company. It is also the first English law digital bond issued in Hong Kong. The 3.6% notes used a two day settlement window.
The integration with other CMU systems means that investors who don’t directly participate in the DLT platform can still buy the notes in the conventional manner. For this issuance the bonds are accessible directly via the DLT, via custodians and via CMU accounts. The February sovereign bonds were issued under Hong Kong law and were also accessible via Euroclear and Clearstream. However, the Euroclear and Clearstream linkage to CMU is not yet available for the English law digital bond.
While digital bond issuances promise efficiencies, lower costs and the potential of risk reduction through delivery verus payment, liquidity can be an issue. However, this is addressed by these CSD integrations. Otherwise, if the bonds are only available via the DLT and not through the channels that investors normally use, it reduces the potential pool of investors and hence the bond’s liquidity.
HSBC took on quite a few roles as issuer, platform provider, arranger, dealer, sole bookrunner and joint lead manager. The other lead managers were Agricultural Bank of China (Hong Kong Branch), China Construction Bank (Asia), Bank of China, ICBC (Asia) and Bank of Communications.
Linklaters provided legal guidance to HSBC as sole global coordinator and to the joint lead managers. Ashurst advised HSBC as issuer.
Meanwhile, HSBC Orion uses Digital Asset’s DAML combined with Hyperledger Fabric.
Update: Added clarification re Clearstream & Euroclear. We previously had a paragraph on notable legal aspects which we removed while we check the factual accuracy. Additionally added Ashurst as issuer adviser.
