A new digital asset venture between Singapore Exchange (SGX) and the sovereign wealth vehicle Temasek has announced its first partnership – with Covalent Capital, the fintech backed by alumni from Deutsche’s global markets business, which was profiled by Euromoney in 2018.
The SGX/Temasek venture is called Marketnode and is focused on digital initiatives in the capital markets space. It builds upon a previous initiative between the two groups and HSBC, which led to the issuance of Asia’s first public syndicated digital bond, for Olam International in August.
It will be unique. The first time there has been a one-stop listing, issuance and lifecycle management platform
Mayur Ghelani, Covalent
The Marketnode partnership, announced on January 22, pledges to partner with fixed income issuance platforms in order to create a comprehensive digital network for Asian bonds from issuance to settlement. It is now clear that Covalent will be the vehicle for that and Marketnode has said that it will take a minority stake in the company.
When Euromoney first wrote about Covalent, it had grand ambitions to revolutionize primary debt capital markets. Founded by a group of ex-Deutsche bankers including former head of trading, Asian credit, flow, financing and credit solutions Sanjay Garodia and head of Asia-Pacific relationship management Mayur Ghelani, it built a platform for primary issuance that aimed to centralize and disseminate information around new bond issues.
The new announcement suggests that the Covalent platform, called OMAS, will now extend to the post-trade infrastructure, including custody and clearing, using the SGX’s listing, post-trade and asset servicing capabilities.
“It will be unique,” Ghelani tells Euromoney. “The first time there has ever been a one-stop listing, issuance and lifecycle management platform.”
Demand for capital
Why does any of this matter? It starts with the demand for capital in Asia, which may have been weakened by Covid-19 but is already bouncing back. G3 currency primary issues in Asia ex-Japan have already grown 46% to $387 billion over the two years to the end of 2020; there were 800 new issues last year alone.
There is a belief that digitizing this market and adding efficiency to workflows, will help to meet that demand for capital. The logic is also that if digitization can streamline processes, improve information availability and make the whole thing cleaner, then why not do it?
The Olam bond, which was followed by a S$250 million digital issue in January 2021, was a test case for the mechanics of digital issuance in an area of the capital markets that has historically been opaque and labour intensive.
Garodia told Euromoney in 2018: “The challenge I find in primary is that because there is no centralized real-time information dissemination, you need an army of people just to convey each change. That is the biggest pain point I see.”
The Monetary Authority of Singapore has been supportive of Covalent and its ideas from the start, believing that digitalization and automation will mean greater efficiency, market transparency and information availability.
One can see now how other big institutions have also stepped forward. Prady Agrawal, managing director at Blockchain@Temasek, explains how the sovereign wealth vehicle has built its own internal centre of excellence around blockchain and other digital ideas, and is trying to be a driver of innovation in its home market.
“We see the transformative potential of end-to-end digital asset solutions for financial transactions,” says Agrawal.
So far four digital bonds have been issued through the SGX, raising over S$1 billion.
Ghelani says the OMAS platform now has about 18% market share of Singapore dollar corporate issues, with more than 200 financial institutions across Asia “happy ambassadors” of the product. The MAS originally backed OMAS through its financial sector development fund sandbox initiative – and it will be interesting to see how the involvement of Temasek and the SGX elevates it now.
This is unlikely to be the last we hear of Marketnode, which aims to support digital marketplaces across multiple asset classes, not just debt. It intends to use smart contracts, ledger and tokenization technologies for traditional capital markets products.
