Today Singapore’s DBS Bank announced it has priced its first blockchain digital bond on the DBS Digital Exchange (DDEx). As with other security token offering platforms launched by institutions, the first bond raises a relatively small amount of funds for DBS itself.
The SGD 15 million ($11m) DBS Digital Bond has a six-month maturity, carries a 0.6% coupon and was privately placed.
Late last year, DBS announced it received regulatory approval for the digital asset exchange. The solution has three aspects, a cryptocurrency exchange launched in December, a security token platform and digital asset custody, all available only to accredited investors. In terms of security token offerings (STOs), it targets unlisted stocks, bonds, and private equity funds. On the latter point, Asia-Pacific assets under management make up 28% of the global private equity market, according to Bain.
“This cements our ability to provide integrated solutions across the digital asset value chain, from deal origination to tokenisation, listing, trading, and custody, which in turn opens the door for more STOs on DDEx,” said Eng-Kwok Seat Moey, Group Head of Capital Markets at DBS.
By digitizing the bond, the tokenization process can save substantial costs both at issuance and post-trade costs in the secondary market. In turn, this means smaller issuances and transactions become viable. For this bond, the lot size is SGD 10,000 instead of the typical SGD 250,000 for wholesale bonds. This is one of the reasons why digital assets are seen as creating more liquid markets. Even though access is restricted to accredited investors, the difference in lot sizes broadens the market significantly.
“While most bond tokenisation exercises announced in Asia to date tend to be repackaged forms of a conventional bond issue, the current transaction directly combines existing legal and tax infrastructure requirements with a direct issuance on the digital exchange in smaller lot sizes,” said Clifford Lee, DBS Global Head of Fixed Income.
“This bond token structure was only made possible because of the progressive development of Singapore’s legal and tax infrastructure, which can facilitate more STO issuances to broaden and deepen our capital markets.”
That infrastructure is making Singapore a popular destination both for local institutions and global ones. The Singapore Exchange (SGX) has a 10% share in the DDex. SGX also has a digital asset joint venture in association with state-owned investment firm Temasek. And Temasek is DBS Bank’s controlling shareholder.
Additionally, SGX and Temasek’s subsidiary Heliconia Capital Management are also investors in security token firm ADDX (formerly iSTOX), which recently tokenized private equity bonds from a wholly-owned Temasek subsidiary.
One example of foreign interest is Japan’s SBI and the Swiss stock exchange SIX, which are planning a digital asset exchange in Singapore.
Last week, DBS, SGX and Temasek announced plans for a global carbon exchange CIX using blockchain in conjunction with Standard Chartered.