The European Investment Bank (EIB) has priced its first ever £50 million digital bond using a combination of private and public blockchains operated and accessed via HSBC Orion – the bank’s tokenisation platform.
It follows the recently adopted Luxembourg legal framework tailored to allow for the issuance, transfer and custody of dematerialised securities on distributed ledger technology (DLT) infrastructure.
Head of fixed income at Schroders, Andrew Chorlton, said, “We are excited to participate in this digital bond issuance, an important innovation for the development of digital asset solutions. This is another important step on our journey to understand the transformative potential of distributed ledger technology and how it may support the asset management industry to deliver better outcomes for our clients.”
The encrypted private blockchain serves as the record of legal ownership of the digital bonds and provides an operational framework to manage the floating rate instrument and its lifecycle events. The public blockchain is used for information purposes and provides increased transparency to investors and the market as to holdings of the digital bonds on an anonymised basis. The dematerialised digital bonds will be held in digital securities accounts kept on HSBC Orion. The BNP Paribas Securities Services business in Luxembourg, RBC and HSBC will act as custodians for existing clients who invest in this digital bond.
BNP Paribas head of digital assets for debt capital markets, Benjamin de Forton, added, “After the successful euro-denominated trades, the EIB is now launching the world’s first ever digital bond denominated in pound sterling. This bond is testing the potential of tokenisation on a private ledger for safety and efficiency combined with disclosure on a public ledger for transparency. We are honoured to partner with the EIB in exploring the usage of tokenisation in capital markets.”
Managing director and head of DCM syndicate at HSBC, EMEA, Asif Sherani said, “We’re delighted to work with the European Investment Bank on the first digital Sterling bond. This is also the first public issuance on our tokenisation platform, HSBC Orion, which has opened up opportunities for faster processing and improved operational performance across fixed-income issuance.”
RBC Capital Markets’ head of European DCM and syndicate, Sean Taor, said, “RBC is honoured to have worked with the European Investment Bank again in helping develop a new product in the pound sterling primary bond market. This landmark transaction marks the first sterling-denominated digital bond and opens the path for other market participants to follow.”
The digital bond issuance is intended to bring benefits to market participants by reducing costs, improving efficiency and allowing for real-time data synchronisation across participants.
The architecture — distributed between BNP Paribas, HSBC and RBC Capital Markets — sees HSBC acting as central account keeper recording transactions in the digital bonds on the secure HSBC Orion platform.
EIB was advised in this transaction by Clifford Chance while the joint lead managers were advised by Allen & Overy.
EIB vice-president, Ricardo Mourinho Felix, said, “The EIB’s role as the EU public policy bank goes beyond acting as an ordinary bank. We promote innovative and disruptive solutions, as demonstrated 15 years ago with the very first green bond issuance. The time has come for further innovation in the financial sector, and we are pleased to issue the first digital bond in pound sterling on a private and public blockchain with the support of our counterparts. This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.”
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