Zhuhai Huafa Group, a state-owned urban and property developer in China’s Guangdong province, issued an inaugural 3-year Rmb1.4 billion ($191 million) guaranteed digital native bond late last year in December, becoming the first corporate entity to issue such bonds on blockchain-based digital networks.
The issuance, priced at 4.5%, was issued on HSBC’s digital network, Orion; cleared and settled through the Central Markest Unit (CMU) operated by the Hong Kong Monetary Authority (HKMA); and dual-listed on the Hong Kong Stock Exchange and Chonghwa (Macao) Financial Asset Exchange. Mainland Chinese investors can access the bond through the Southbound Bond Connect Scheme.
The transaction was completed through the group’s British Virgin Island-incorporated subsidiary, Huafa 2024 I Company, guaranteed by Zhuhai Huafa. Net proceeds, approximately Rmb1.39 billion after deductions for expenses, will be used to refinance existing offshore indebtedness, according to a financial disclosure.
The bond has been assigned credit ratings of BBB by Fitch and A+ by Lianhe Ratings Global.
Market first
Across Asia, this is one of the first corporate digital bond issuances, and a first issued by a Chinese non-financial enterprise.
In Hong Kong, this marks the first digital bond issued by a corporate, and follows the Special Administrative Region’s (SAR) HK$6 billion ($770 million) equivalent multi-currency digital green bond last February, and HSBC’s own HK$1 billion offering in September as the first private sector issuer.
According to HSBC’s press release, the issuer intends to apply for the HKMA’s digital bond grant scheme, issued late last year to support the segment in the city, subsidising qualified digital bond issuers with up to HK$2.5 million to pay issuing expenses.
The digital bond grant scheme is widely seen by market participants as a strong incentive for issuers to consider digital bond transactions in Hong Kong.
John O’Neill, group head of digital assets and currencies at HSBC, remarked in the release: “This new issuance brings together several significant developments for digital bonds in Hong Kong.”
The offering is also the first bond constituted on the Orion platform, which users distributed ledger technology (DLT), with its maturity longer than one year.
Participating banks of the bond deal include HSBC, Huatai International, Haitong International, CITIC Securities, CMB International, China Securities International, China International Capital Corporation, Guotai Junan International, Luso Bank, CNCB Capital, China Industrial Securities International, CMBC Capital, Huajin Securities (International), SMBC Nikko, SPDB International, and Dragonstone.
Linklaters, King & Wood Mallesons and Deheng Law Offices advised on the deal.
“This transaction sets an important and successful precedent for other Chinese corporate issuers who are interested in exploring opportunities presented by innovative financing instruments,” Michael Lu, partner at King & Wood Mallesons, commented.
