Austria’s GreenRock Energy is issuing a tokenized green bond to raise €25 million ($27m), with the funds to be invested in solar panel businesses and installations. It says the issuance of the tokens on the public Polygon blockchain is ‘approved’ by three regulators, Germany’s BaFin, Austria’s FMA and Italy’s CONSOB.
On the one hand, the issuance demonstrates the potential for small firms to tap the capital markets targeting consumers with low barriers to entry. There is a pressing need to empower SMEs to raise funds more easily. The lower issuance cost for the SME and the fractionalization enabled by tokenization make it more accessible for retail investors.
On the other hand, it illustrates the substantial risks to consumers without a clear risk rating.
“Our innovation enables investors to invest safely and efficiently in the energy transition,” said Martin Kofler, CEO of GreenRock Energy Group in a statement. “Thanks to the approval of BaFin, FMA and CONSOB, investors can acquire fully regulated and audited bonds without having to rely on custodian banks.”
The issuance is listed on the BaFin website. BaFin’s approval of the prospectus simply means that it includes all the required information. The good news is the published prospectus appears honest and identifies the risks involved. However, those risks are many and very significant.
So many that the retail target market and a minimum investment of €1,000 ($1,072) is a little concerning. That’s particularly because there’s an attractive 7.5% coupon plus 5% of profits (EBITDA). And the appeal of a ‘deep green’ bond rating for sustainability-minded people.
Do retail investors read the documentation?
It is up to investors to read the prospectus where the company is transparent about the risks. The question is how many consumers will do so and understand the document.
The company is part of a group, but this particular subsidiary has no current revenues, which wasn’t obvious from the website because that’s the group website. As a result of losses, the issuer has negative equity, with accounts provided to the end of 2021 (not 2022).
The bond has no fixed maturity date, although investors can request redemption from 2026 onwards. However, the redemption is not guaranteed because the company has to have sufficient liquidity to pay investors.
If the company doesn’t have funds for redemption or pay the bond interest, the bond investors cannot force bankruptcy according to the terms. And as a deeply subordinated bond, if there is insolvency, the bondholders are behind all other creditors at the back of the queue.
So it’s like a shareholder, because of the risks and there is a cut of profits. Except investors don’t have a vote. A similar planned blockchain bond from the same company of €5 million targeted institutional and accredited investors. There had been no take-up for the accredited bond when the prospectus was published.
On top of this, there are issues to do with the narrow control of the company that is part of a group. And the fact that currently there is no regulated secondary market for crypto securities, so the bonds will be illiquid until a market exists.
We have nothing against GreenRock Energy. They may put the funds to very good use. It’s just the risk profile seems rather high for retail investors.
This particular bond also should not reflect on digital securities issued by SMEs. Others might offer more traditional terms and come from companies with a track record, making them less risky.
Meanwhile, the technology partner is TokenForge and the crypto custodian and securities registrar is Tangany.