The green and sustainability-linked bond markets were initially fostered by public-sector issuance – and the world’s best bank in this category, HSBC, is anticipating that the same thing will also happen with tokenized bonds.
HSBC led two tokenized public-sector bond issues over the last year. The first, a £50 million note for the European Investment Bank was settled in February 2023. Shortly after, HSBC also led a HK$800 million ($102 million), one-year tokenized green bond for the Hong Kong SAR government – the first institutional tokenized green bond issued by a government issuer.
The deal met the administration’s desire to innovate in digital bonds – part of its strategy to position itself as a forward-looking financial centre.
Shortlisted
- Citi
- JPMorgan
For HSBC, similar positive branding effects were welcome. Robert Langford, managing director and head of public sector for Asia Pacific at HSBC, says it was important to execute a “real deal” to demonstrate the improvements in the efficiency and transparency of the settlement process that digital assets can offer.
“This transaction has proven the concept and helped to establish a market,” says Langford. “We expect future transactions to offer incremental benefits including access to a wider range of investors, multicurrency, cross-border settlement and retail tranches.”
Issuing on the blockchain was quicker and more efficient than traditional offerings, but there was obviously a smaller pool of buyers.
“In the short term, these types of developments take longer than you expect, however in the long term the market adoption happens more quickly than you expect,” says Michael Ellam, global head of public sector at HSBC global banking and markets. “What is important is to build up the number of investors who are familiar with the product and are then able to hold these assets.”
HSBC is working with other public-sector issuers to replicate tokenized bond transactions in other regions, with a view to broadening both the issuer and investor bases. As well as efficiency, the structure offers transparency benefits, as well as the potential for fractionalization of bonds, which could merge institutional and retail classes into individual transactions.
HSBC worked on additional transactions for the Hong Kong SAR government during the awards period, including retail issuance, green and ‘silver’ bonds targeted at older individuals.
Overall, it was a stellar year for HSBC’s public-sector team. As well as issuing fresh debt across geographies and formats – Uruguay’s sustainability-linked bond was a standout transaction with the first-ever combined step-up and step-down structure for a sovereign – the bank also helped public-sector issuers monetize assets. The bank ran IPOs for public-sector clients, such as the Dubai government’s IPO of Dewa, the sole provider of water and electricity.
What is important is to build up the number of investors who are familiar with the product and are then able to hold these assets
Michael Ellam, HSBC
HSBC also helped Abu Dhabi in the largest-ever IPO on the local exchange for Adnoc Gas ($2.5 billion equivalent) and HSBC was the sole bank supporting the issuer on the environmental, social and governance work streams.
In Indonesia, HSBC helped to bolster the country’s renewables and energy industry with the IPO of Pertamina Geothermal Energy.
Green and sustainability-linked bonds were a clear theme. As well as Uruguay’s landmark bond, HSBC was sole global coordinator and ESG structuring agent for the city of Sharjah’s inaugural sustainability bond, a $1 billion, nine-year transaction. The deal will help Sharjah align with the UAE’s national 2050 net-zero target. HSBC also led on Indonesia’s dual-tranche green sukuk, the largest ever printed for the country and the fifth green issuance from Indonesia that HSBC has brought to market.
Meanwhile, HSBC has also formed a joint venture with Temasek, called Pentagreen Capital, to help develop financeable infrastructure projects in southeast Asia. This includes a partnership with the Asian Development Bank to help generate a pipeline of deals that can be financed through blended capital solutions – bringing in private capital alongside public-sector finance.
In a similar vein, HSBC has partnered with International Finance Corporation to support trade financing for emerging-market issuing banks to support the flow of critical goods to countries in Latin America, central Asia, the Middle East and Africa.
Another strong theme on the public debt side this year, for both sovereigns and quasi-sovereigns, was liability management. In one such case, HSBC worked closely with a new board at Petroperu following the decision by the company’s auditor, PwC, not to sign its accounts. HSBC worked closely with the Peruvian government to get consent for the delay of its 2021 accounts and enable the company to progress with other financing.
“We worked very closely with Petroperu’s new senior management team and newly appointed board of directors, as well as the government of Peru, and together with the advice given by the consent solicitation agents, the company was able to achieve 92% of investors supporting the consent solicitation process,” says Nora Rodriguez, managing director, head of public sector for the Americas at HSBC. “It could have potentially been a breach, so the outcome was a good one for the company.”
