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Fintech

World Bank launches first bond on blockchain

With a modest-sized two-year Aussie dollar transaction, the World Bank may have ushered in a new era of speed, efficiency and transparency in debt capital markets, with deals announced, order books built and bonds priced and allocated on blockchain.

The World Bank priced a two-year A$110 million bond issue with a 2.2% coupon on August 23 through lead manager Commonwealth Bank of Australia (CBA) to yield 2.251%.

It had mandated the deal two weeks earlier and the issuer and lead manager had spent the intervening time consulting with investors to ensure a high-quality order book.

These primary buyers eventually included superannuation fund First State Super, New South Wales Treasury Corporation, asset manager Northern Trust, leading domestic insurance company QBE, South Australian Government Financing Authority and Treasury Corporation of Victoria.

The World Bank issues between $50 billion to $60 billion each year in new bond deals. As a frequent issuer in Australian dollars, it has raised A$60 billion from investors inside and outside the country since its first deal in 1986.

Why did it take such inordinate care with this $80 million-equivalent transaction? Because this was the first bond the World Bank had ever done anywhere in the world created, allocated, transferred and managed through its life cycle using blockchain technology.

Behind a fairly standard transaction in the global capital markets lay months of work between CBA and the World Bank, which in June 2017 had launched a blockchain innovation lab to explore the potential impact of distributed ledger technologies.

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