EIB’s first-ever digital bond at £50 million

01 / 02 / 2023

By Marwa Nassar - -

The European Investment Bank (EIB) 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 tokenization platform. It follows the recently adopted Luxembourg legal framework tailored to allow for the issuance, transfer and custody of dematerialized securities on distributed ledger technology (DLT) infrastructure.

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 instrumentand 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 anonymized basis.

The dematerialized 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.

The pioneering vision of digital bonds intends to bring benefits to market participants by reducing costs, improving efficiency and allowing for real-time data synchronization 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.”

Benjamin de Forton, Debt Capital Markets Sovereign, Supranational & Agencies, EMEA, BNP Paribas 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 tokenization on a private ledger for safety and efficiency combined with disclosure on a public ledger for transparency. We are honored to partner with the EIB in exploring the usage of tokenization in capital markets.”

HSBC Head of DCM Syndicate 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 tokenization 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 honored 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. Congratulations to the European Investment Bank for a successful transaction and for leading the way.”

LuxSE Director of International Capital Markets and Member of the Executive Committee Arnaud Delestienne concluded “This new digital bond issuance marks yet another firm step towards the all-important digitalization of capital markets. The adoption of blockchain technology has the potential to significantly enhance global debt capital market operations, and we are proud to build on our longstanding relationship with the European Investment Bank by acting as the listing venue for this landmark digital bond.”

HSBC Group Treasurer Carlo Pellerani said “This is an exciting achievement made possible by the work of all parties involved. HSBC’s commitment to driving innovation is a key differentiator for the firm. Further digitalization of capital markets promises a more efficient and robust financial markets ecosystem for both issuers and investors. We are delighted to have been part of this landmark transaction.”

BNP Paribas Head of Group ALMT Bond Portfolio Management Hervé Cros said “BNP Paribas is pleased to invest in the first EIB digital issuance bond denominated in pound sterling, helping to better understand how blockchain-based settlement platforms can be used in liquidity management.”