Hong Kong Hires Banks For Debut Digital Green Bond Sale

(Bloomberg) -- Hong Kong’s government has hired banks to arrange its debut sale of digital green bonds, expanding the use of a nascent technology that promises faster settlement and payment.

Most Read from Bloomberg

The special administrative region is looking to raise HK$800 million ($102 million) via the issuance of so-called tokenized green notes and has tapped Bank of China Ltd., Credit Agricole S.A., Goldman Sachs Group, Inc. and HSBC Holdings Plc. to hold investor calls from Monday, according to people familiar with the matter who requested anonymity discussing private matters.

The beneficial interests in the notes will be recorded on a distributed ledger technology-based digital assets platform provided by Goldman Sachs, said the people.

Digital bonds remain a relative novelty, with Singapore’s DBS Group Holdings Ltd. and the European Investment Bank among the notable pioneer issuers so far. The blockchain-powered platform for such bonds offers quicker settlement as it bypasses clearing systems, while coupon payments are also made faster.

“Green bonds are a good start to employ tokenized technology in bond issuance, which is notorious for its opaque pricing, spread and fees,” said Wilson Chan Fung-Cheung, an MBA program director at the City University of Hong Kong. “The challenges are product standardization among different issuers, and a transparent and traceable green accreditation.”

Joseph Chan, Hong Kong’s Acting Secretary for Financial Services and the Treasury, said in a recent statement that the planned tokenized green bond will be a pilot issuance to test out the compatibility of the city’s existing legal and regulatory framework, financial infrastructure, and market operational practice with tokenized issuances. Bond tokenization has the potential to enhance the efficiency and reduce the cost of bond issuance and settlement, he added.

Hong Kong has been pursuing a plan to become Asia’s digital-asset capital, including a licensing program for crypto platforms set to be enforced in March that will allow retail trading.

The planned note sale also continues Hong Kong’s efforts to become a hub for sustainable financing. The city just sold its largest-ever green deal last month, issuing the equivalent of $5.8 billion of green bonds denominated in three currencies.

“A tokenized green bond on a blockchain should bring more transparency. However, questions need to be addressed, such as whether the platform will invite other parties to validate transactions and how transparent transactions and deal details are to all participants,” said Jamie Douglas Coutts, a Bloomberg Intelligence analyst. “As more banks attempt to propagate their private blockchain solutions, the question of interoperability will likely rise to the forefront.”

--With assistance from Sunil Jagtiani and Sheryl Tian Tong Lee.

(Adds analyst comments)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.