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China Construction Bank has partnered with Hong Kong-based fintech company Fusang to launch the sale of US$3 billion worth of debt on a blockchain, the first digital security issued by a Chinese bank on the technology.
Blockchain has made issuing conventional financial instruments, such as equities and bonds, possible at much lower costs as fewer financial intermediaries are involved in the process.
The bond will be sold in the form of certificates of deposit, which are usually sold at several tens of thousand yuan each and attract mainly professional investors or other banks. They are often used for interbank funding, specifically for small to medium-sized banks in China.
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By tokenising certificates of deposit on blockchain, retail investors can now buy the digital certificates in small amounts.
Blockchain, democratising financial instruments. Photo: Shutterstock alt=Blockchain, democratising financial instruments. Photo: Shutterstock
China Construction Bank's certificates of deposit will be issued through its Labuan branch with a tenor of three months. Issued at a minimum of US$100 each, the certificates will yield about 0.75 per cent at maturity, higher than the roughly 0.25 per cent interest rate per annum interest rates at banks.
The deal also allows investors to trade these China Construction Bank's digital certificates using bitcoin, on Fusang Exchange, a digital exchange licensed by the financial regulator in Labuan, Malaysia. Trading of the bond, which can also be done in US dollar, will begin this Friday.
If this transaction is a hit with investors, Fusang hopes to work with the state-owned bank on issuance in other currencies, including yuan, said Henry Chong, chief executive at Fusang.
As a first tranche of the US$3 billion programme, China Construction Bank will make US$58 million worth of digital certificates available for public subscription. Beijing-based China Construction Bank Corp, listed in Hong Kong and Shanghai, will be the lead arranger.
But investors interested in these notes may also need to read through the fine print, according to the programme's terms, trading of the notes will be subject to the guidelines of Fusang Exchange.
Also, as this is an offshore US dollar issuance by the bank, the digital certificates are not covered by China's deposit insurance. China Construction Bank was not immediately available for comment.
The bank's principal officer of the Labuan branch, Felix Feng Qi, said in a press release on Wednesday that the issuance serves to "narrow the divide between fintech and the wider financial markets".
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.