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Hong Kong’s US$756m digital green bond is largest so far

hong kong digital green bonds

Yesterday the Hong Kong Monetary Authority (HKMA) confirmed the issuance of the Hong Kong government’s second digital green bond. This one is natively digital compared to last year’s bond, which was tokenized from a conventional issuance. With an issuance amount equivalent to $756 million, this makes it comfortably the largest digital bond to date as well as the first multi currency one. The second largest was a CHF 375 million bond issued by UBS in 2022.

The tranches were as follows:

  • HKD2 billion ($260m) tranche at 3.800%
  • RMB1.5 billion ($210m) tranche at 2.900%
  • USD200 million tranche at 4.749%
  • EUR80 million ($86m) tranche at 3.647%

“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,” said Mr Eddie Yue, CEO of HKMA.

External linkages boost liquidity

Apart from reducing costs, one of the goals of digitalization is to improve liquidity. However, a siloed issuance achieves the opposite. Hence, investors could participate in the digital green bond via Euroclear and Clearstream accounts. SIX was the first to create such a linkage between its digital SDX and conventional SIS central securities depositories. Likewise, Euroclear integrated its D-FMI digital assets platform with its main systems for the World Bank bond issuance.

The Hong Kong bonds were natively issued on HSBC’s Orion distributed ledger, which acts as the definitive record of legal title. Hong Kong’s Central Moneymarkets Unit (CMU) was the central securities depository (CSD) responsible for the issuance. It integrated HSBC Orion with its existing systems and enabled the linkage with Euroclear and Clearstream.

Direct participants on the DLT platform can clear and settle atomically from 0000 to 2330 during weekdays. Others can hold the bonds indirectly via the CMU and its external linkages. HKMA noted that this “could potentially facilitate interoperability across different digital assets platforms and traditional central securities depositories.”

Other features emphasized by the HKMA were the inclusion of ICMA’s Bond Data Taxonomy and recording documentation on the digital assets platform, including the Green Bond Framework and third party reviews on the digital assets platform.

Transaction participants

The two year bond is issued according to Hong Kong law, listed on the Hong Kong Stock Exchange and rated AA+/AA-. 

We previously reported the involvement of five banks, but there were six lead managers. They were Bank of China (Hong Kong), Crédit Agricole CIB, Goldman Sachs, HSBC, ICBC (Asia) and UBS. Only four are direct participants on Orion – Goldman and UBS were not.

Three sets of lawyers participated. Allen & Overy advised the HKSAR government, Ashurst worked with HSBC as the platform provider and Linklaters provided input to the joint lead managers.

Hong Kong’s digital bond program grew from Project Genesis, a joint digital green bond exploration with the BIS Innovation Hub in Hong Kong.

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