In May 2023, Volvo Treasury completed a dual tranche €1bn syndicated benchmark bond issuance on Origin, a platform designed to digitise the primary issuance process.
“We are issuing standardised products with a post-trade process that hasn’t changed for decades,” said Danijel Afolter, Portfolio Manager at Volvo Treasury. “Seeing draft trade documentation ready just a couple of hours after bond pricing really made me aware of the opportunity to improve efficiency.”
Volvo anticipates needing to access capital markets more frequently in the future and, because of that, is very keen on removing the friction associated with accessing these markets, adds Origin CEO Raja Palaniappan.
He describes the administrative effort required to issue a bond as unnecessarily cumbersome. “The lifecycle of a trade from origination and pricing through to settlement involves many steps, most of which can be summarised as ‘put data into a document, email that document, recipient takes data out of that document and puts data into system’,” says Palaniappan.
This process is repeated across multiple individuals and teams across front, middle and back office as well as legal. As a result it typically takes five days between a bond being launched in the market and the cash being received by the issuer.
“Most of the delay comes from the time it takes to prepare, review, sign and distribute the transaction documents (termsheet, pricing supplement, subscription agreement),” says Palaniappan. “By using a platform, the processes for preparing the documentation and sharing the data contained within the documentation become faster, cheaper and more efficient.”
Interest in the potential of blockchain-based bond issuance platforms is based on the fact that through the use of smart contracts, complex flows can be streamlined in a secure manner and there is less reliance on intermediaries – such as bookkeepers – for notary purposes.
“Through the use of cash-on-chain solutions for settlement of bonds it is also possible to settle bonds more quickly and increase the number of bonds that can be settled at scale,” suggests David Creer, Global DLT, Crypto and e-Money lead at GFT. “If we look further into the future, blockchain-based bond issuance systems also potentially open the bond market up to a growing secondary market in public blockchains.”
However, a report published by UK Finance last year acknowledged that tokenised issuances represent a tiny fraction of overall securities issuance.
John O’Neill, Global Head of Digital Assets Strategy at HSBC accepts that demand for digital bond issuances to date has been mainly from public sector entities. “However, we are also seeing deeper interest from corporate issuers as the market becomes more liquid,” he says.
In May 2023, SEB and Crédit Agricole CIB launched a blockchain-based digital bond platform. “We think that blockchain is an enabler, but building a critical mass is dependent on many more factors than the technology in itself,” says Johan Hörmark, Head of Business Development for Investment Banking and Equities at SEB. “Development will depend on the willingness of governments to be open to experimentation, sandboxes and full scale roll-out. Currently, several of the DLT-based infrastructures are capped at amounts not making it possible to move issuances at scale.”
Blockchain will play a structural role in the future of the digital fundraising, but it will not be enough on its own agrees Guénolé de Cadoudal, Head of the Digital Assets Group at Crédit Agricole CIB.
“While corporates will still need debt capital market banks to advise on market conditions, distribute new issuance to investors and animate the market, blockchain can help both parties with logistics,” he says. “However, solutions and offers from banks will need to be built in addition to this technology.”
