China Construction Bank has underwriten a digital bond on a retail exchange operated by FUSANG Exchange in Labuan, Malaysia, that will give global investors access to a bank-deposit-like exposure offering relatively high interest.
Henry Chong, FUSANG’s Hong Kong-based CEO, says this is not the first time a bank has issued a bond via blockchain. “But where do you buy those other bonds?” he said.
These other securities have been done as proofs of concept, usually among single issuers, arrangers, and investors. “They haven’t disintermediated anything,” Chong said. “We’re offering a bank product to global investors.”
CCB’S long bond
CCB’s Labuan branch is the lead arranger of the bond issued by a special purpose vehicle affiliated with the bank called Lonbond, that will give investors access to access to bank-secured deposits at an annualized rate of LIBOR plus 50 basis points, or about 75% at current market rates.
The bank hopes to raise up to $3 billion for Longbond, which is denominated in U.S. dollars and can be accessed in dollars or bitcoin. FUSANG can administrate transactions down to US$100. Retail or wholesale investors from anywhere can participate, if they are members of FUSANG Exchange, except for peninsula Malaysians and U.S. citizens.
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“Normally even corporations couldn’t access a bond of this size in traditional bond markets,” Chong said, “and at today’s interest rates they’d have to pay a premium to LIBOR just for the privilege of getting access.”
Although the Labuan branch is sponsoring the bond, the U.S. dollar proceeds will go into CCB’s central treasury, to be used in the bank’s interbranch business and lending activities. Legally the exposure to investors via its Labuan branch (which is considered a tier-1 branch by CCB) is the same as if they opened a bank account at CCB in China. Fusang handles any conversions from other currencies or cryptocurrency.
Steven Wong Weng Leong, chief operating and financial strategist at CCB (Malaysia), says the bank will judge the success of this deal by two measures. First, it’s a technical achievement to marry traditional financial products with blockchain. Second, the bank will need to gauge the level of demand.
“We are aiming for the skies,” he told DigFin, “but any meaningful participation aside from the initial group of collaborating investors we would take as a victory.”
Chong says all of China’s leading banks are taking the lead in blockchain-based solutions. The country’s leading infrastructure such as private stock exchanges are already charging ahead.
The bond lists today, Wednesday 11 November. Trading begins on Friday.