IFR 08.24.2019

(Kiana) #1
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World Bank adds to


baby blockchain steps


„ Bonds Supranational attracts two new investors for tap

BY JOHN WEAVERS

The WORLD BANK has added a grand
total of two new institutions to
the investor base for its Australian
dollar blockchain bond issue
following a marketing effort in
!USTRALIAûANDû3INGAPORE
The two investors, including
THEûlRSTûFROMûOUTSIDEû!USTRALIA û
SUBSCRIBEDûTOûAû!Mû53M û
TAPûOFûTHEûû!UGUSTûûû
"ONDIû+ANGAROOûNOTES ûTHEûlRSTûnû
and still the only – public
OFFERINGûOFûBLOCKCHAINûBONDS
!ûLOCALû$#-ûMANAGERûSEESû
blockchain technology, which
allows the bond’s life cycle and
trades to be recorded on a
distributed ledger, as a long-term
solution on the processing side of
transactions by delivering speed
ANDûEFlCIENCYûBENElTSû"UTûSHORT
term obstacles are preventing
RAPIDûEXPANSION
“Few investor systems are set up
for blockchain bonds in Australia,
while the lack of liquidity in the
now A$160m World Bank Bondi
compared with A$1bn-plus
standard World Bank Kangaroos as
WELLûASûTHEû'34ûHAVEûCONTAINEDû
BUY
SIDEûINTEREST vûHEûSAID
The Bondi bond issue does not
fully embrace blockchain
technology because payments are
still made via the existing SWIFT
SYSTEMûTOûAVOIDûTHEûû!USTRALIANû
GOODSûANDûSERVICESûTAXû'34 ûONû
lAT
CURRENCY
LINKEDûTOKENS
Settlement for the initial
A$110m two-year sale in August
2018 was T+3 days, the same
period for the reopening, which
was priced on August 13 and
SETTLEDûONû!UGUSTû
The addition had three buyers,
including New South Wales
Treasury Corp, which was one of
the original seven investors last
YEARû4HEûNAMESûOFûTHEûTWOûNEWû
INVESTORSûWEREûNOTûREVEALED
The other six original
investors were Commonwealth
Bank of Australia, First State
Super, Northern Trust, QBE,
3OUTHû!USTRALIANû'OVERNMENTû
Financing Authority and

Treasury Corporation of
6ICTORIA
!NûOFlCIALûATûONEûOFûTHESEûSAIDû
he does not expect the blockchain
MODELûTOûTAKEûOFFûUNTILûTHEû'34û
QUESTIONûISûRESOLVED
“At the moment investors suffer
operational risk because the bond is
registered through blockchain but
TRANSFERSûAREûMADEûOUTSIDEû5NTILû
we have end-to-end operational
EFlCIENCYûTHENû)ûDOûNOTûANTICIPATEûAû
RUSHûOFûREPLICAûISSUESûHEREv
The tap, via joint lead managers
CBA, RBC Capital Markets and TD
Securities ûWASûPRICEDûATûûFORû
AûYIELDûOFû ûEQUIVALENTûTOû
ASSETûSWAPSûPLUSûBP
$ESPITEûMODESTûINVESTORû
participation and the absence of
copy-cat issuance, progress is being
made, albeit slowly, with the World
Bank and CBA able to announce in
May that they had enabled
secondary trading recorded on
BLOCKCHAINûFORûTHEûBOND
Blockchain advocates
emphasise the technology’s
potential to deliver substantial
savings as intermediary activities –
including clearing and the use of
depository institutions – are
EVENTUALLYûSIMPLIlEDûORûREMOVED
The bonds are seen as
providing back-end rather than
FRONT
ENDûEFlCIENCIES ûWITHû
enhanced transparency cited as
one key advantage because the
shared ledger enables issuers to
see all current holders of the
BONDSûANDûTRANSACTIONS
“Since issuing Bondi in August
last year, the positive feedback
and interest from the
TECHNOLOGYûANDûlNANCIALûSECTORû
community globally has been
extraordinary,” said Sophie
'ILDER ûHEADûOFûEXPERIMENTATIONû
and commercialisation at CBA
)NNOVATIONû,ABSûINû-AY
”There is a growing
recognition that blockchain
technology can deliver a superior
digital market for raising capital
and then managing and trading
securities, so we are working
with our strategic partners to

REALISEûTHATûVISIONv (^) „
their aggressive pace of land
ACQUISITIONS
#)&)û'ROUPûDIDûNOTûRESPONDû
to interview requests, while
Future Land, CRCC and R&F
DECLINEDûTOûCOMMENT
!NûOFlCIALûATûTHEû#HINAû
Securities Regulatory
Commission said that
regulators would take a closer
look at the bond issuance
plans of the above mentioned
companies by, for example,
requesting more
documentation on the use of
PROCEEDS
&ORû#)&)û'ROUP ûTHATûMEANSû
the company now needs to
wait another two to three
months to get approvals from
regulators, according to a
person familiar with the
COMPANYSûlNANCINGûPLANS
CIFI has US$110m
remaining from its offshore
bond quota, but is unlikely to
use it because it would attract
government scrutiny, he said,
adding that onshore
corporate bonds and private
bonds are expected to become
AûMAJORûSOURCEûOFûlNANCINGû
THISûYEAR
Some investors have
started to react to the rising
RElNANCINGûRISKSûFACINGûTHEû
SECTORû!ûMANAGERûWITHûTHEû
asset management
department of a commercial
bank in Beijing said the bank
began cutting its exposure to
bonds from the property
SECTORûLASTûWEEKû&ORûEXAMPLE û
it sold bonds issued by
Macrolink Culturaltainment,
CITINGûITSûWEAKENINGûlNANCIALû
POSITION
h4HEûlNANCINGûCHANNELSûOFû
the property sector have been
tightened, pointing to rising
possibilities of default,” she
SAIDûh7EûAREûNOTûEXPECTINGû
any signs of improvement of
THEûlNANCINGûCAPACITYûOFû
property developers this
YEARv (^) „
syndicate for another offering
in April after bookbuilding
HADûSTARTED
“PLAYING WITH FIRE”
$#-ûBANKERSûSAIDûTHATûSOMEûOFû
the arrangers that are most
commonly added at a late stage
often invest their own money
in exchange for a bookrunner
ROLEû3OMEûSELLûTHEûBONDSûTHEû
next day below the reoffer
price, knowing that they will
STILLûMAKEûAûPROlTûONûTHEû
overall transaction once they
receive their bookrunner fee,
but causing the bonds to
underperform in secondary
TRADING
“Adding or removing
bookrunners based on their
contribution by investor
engagement or proprietary
orders through their balance
sheet or trading book is going
to weigh on secondary
trading for a few days, so
these bonds should
UNDERPERFORM vûSAIDûAû$#-û
SYNDICATEûBANKER
“A big Chinese bank issuer
could probably do this
without any negative effects,
but for a low-investment-
grade, inaugural issuer they
WOULDûBEûPLAYINGûWITHûlREv
The secondary
performance of bonds
following a change of
bookrunners was mixed: 10
TRADEDûUPûONûTHEIRûlRSTûDAY ûû
FELL ûANDûTHEûRESTûWEREûILLIQUID
h"YûDElNITION ûDEALSûWITHû
mainly second or third-tier
Chinese bookrunners tend to
place bonds with their less
experienced clients who likely
hold for maturity, unlike
international investors,” said
THEûFUNDûMANAGER
If a large part of those
illiquid bonds ended up being
held by the bookrunners, that
would also explain why they
HAVEûNOTûTRADED
“I don’t think bookrunner
changes have an impact on
INVESTORS vûSAIDûANOTHERû$#-û
BANKERûh4HEYûJUSTûMAKEûLIFEû
HARDERûFORûUSv „
“Adding or removing
bookrunners is going
to weigh on secondary
trading for a few days,
so these bonds should
underperform”

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