Distributed ledger technology and an open-source smart contract programming language were instrumental in Singapore’s launch of the first digital bond.
In an Asia milestone, the stock exchange of Singapore, SGX, has completed its first digital bond issuance, successfully replicating a S$400 million 5.5-year public bond issue and a follow-on S$100 million tap of the same issue by Olam International.
The launch of this digital bond demonstrates the use of digital asset technology, by streamlining processes for issuers, underwriters, investors and ecosystem participants across primary issuance and asset servicing.
Said Olam International’s Managing Director and Group CFO N Muthukumar: “Going digital will make the entire process more efficient and transparent for all parties—issuers like us receive our funds more speedily, investors get their bonds more quickly, while the arrangers, custodian and banks benefit from the reduced probability of error and speed.”
According to Muthukumar, this is in line with Olam’s focused push into digitalization as part of their refreshed strategy to grow sustainably and re-imagine global agriculture and food systems.
Easing a long-standing pain point
To model the bond and its distributed workflows for issuance and asset servicing over the bond’s lifecycle, SGX utilized DAML, the smart contract language created by Digital Asset.
Said Yuval Rooz, Co-founder and CEO, Digital Asset: “The bond market is one of the last bastions of risk holding on to paper and manual processes. Despite the growth in electronic bond trading, many aspects still require manual intervention. SGX’s DAML smart contract solution solves a major pain point that market participants have been working to fix for years.”
SGX’s solution uses smart contracts to capture the rights and obligations of parties involved in issuance and asset servicing, such as arrangers, depository agents, legal counsel and custodians. The digital bond also used HSBC’s on-chain payments solution that allows for seamless settlement in multiple currencies to facilitate transfer of proceeds between the issuer, arranger and investor custodian.
Key efficiencies observed within the pilot include timely ISIN (identifier) generation, elimination of settlement risk (for issuer, arranger and investors), reduction in primary issuance settlement (from five days to two days) as well as automation of coupon and redemption payments and registrar functionality. Building on this digital issuance, SGX will work with issuers, arrangers, custodian banks and investors to digitalize bond issuance, depository and asset servicing, progressively growing the fixed income ecosystem.
Blockchain: “an important milestone”
Said Lee Beng Hong, Senior Managing Director, Head of Fixed Income, Currencies and Commodities (FICC), SGX: “We are very excited that this collaboration with HSBC and Temasek has led to the successful completion of the first digital syndicated public corporate bond in Asia. Debt capital markets globally are characterized by deeply-engrained legacy systems and processes that can be made faster, more accurate and efficient with this new technology. Distributed Ledger Technology (DLT) and smart contracts are rapidly-evolving technologies, and our vision is to fully digitalize the end-to-end corporate bond issuance and asset servicing process. We look forward to playing a part in strengthening the fixed income market infrastructure of Singapore and Asia’s fixed income hub for bond issuers.”
HSBC Singapore worked closely with SGX and Temasek to drive faster, more transparent, and fully-secure settlements for bond issuers and investors. This first digital bond issuance for Olam International shows how on-chain solutions can fulfil payment needs in DLT-based ecosystems, according to the bank’s Head of Global Liquidity and Cash Management, David Koh, and “demonstrates our desire to shape and participate in the next generation of asset networks, to better service our securities services clients.”
Innovative technologies such as blockchain technology are key enablers that can transform processes and systems to create game-changing opportunities, according to Temasek Holding’s Deputy CEO Chia Song Hwee: “The successful bond issuance validates the potential for issuances of other assets and products, and marks an important milestone towards improving financial processes and workflows.”