The Government of the Hong Kong Special Administrative Region of the People’s Republic of China (the “HKSAR Government”) issued approximately HK$6.0bn multi-currency fixed rate digital green bonds (the “Digital Green Bonds”) on 7 February 2024. The two-year multi-currency Digital Green Bonds were denominated in US dollar, euro, HK dollar and Renminbi, making this the first multi-currency digital bond offering globally.
According to global law firm Linklaters, the issuance expands digitalisation in various key areas, notably through the integration of digital securities with green bonds to promote a sustainable and responsible development of the digital securities market. In their latest update (see attachment), Linklaters outlines the structure, regulatory considerations and key features relating to the issuance.
Key insights on the Digital Green Bonds include:
- First-of-their kind deals such as the Digital Green Bonds require a granular assessment against the financial services regulatory perimeter, both in terms of licensing and conduct of business requirements. The Hong Kong financial regulatory regime is well-developed and internationally recognised, proceeding with a tech-neutral footing. However, the regulators recognise that certain digital delivery mechanisms give rise to some nuances for which sensible risk adjusted steps need to be taken.
- The most recent overlay for the Digital Green Bonds was the SFC’s Circular from November 2023 on intermediaries engaging in tokenised securities-related activities (the “Circular”). Intermediaries involved in the issuance and dealing needed to ensure compliance with the Circular and increase familiarity with the basis upon which the technology impacted their role in the deal. Owing to the timing of the Circular’s publication, the Digital Green Bonds reflected one of the first transactions to engage those requirements. Over time, market practice is sure to develop in relation to this space.
- Outside of the Digital Green Bonds themselves, a host of second-order regulatory overlays needed to be assessed. Platform and its various digitally led payments and settlements flows were unique and needed to be unpacked to determine whether any licensing or conduct of business regimes were triggered. This extended to assessing overlays that stretched from the regime for stored value facilities, including deposit-taking and virtual assets.
- The issuance of the Digital Green Bonds along with the launch of the CMU operated Platform have brought issues around custody arrangements, secondary trading, security taking and bond connect in digitally native bonds into focus for market participants and investors in Hong Kong.
Since the launch of the first digital green bond by the HKSAR Government last year, Linklaters has been closely involved in all tokenisation deals in Hong Kong, including Hong Kong’s first tokenised funds and the first Hong Kong law constituted digital note by a Hong Kong incorporated company.
If you are interested in further insights on key updates on digital securities in Hong Kong and Asia, or would like to hear from Linklaters on these trends and developments, do feel free to reach out to us at linklaters@sandpipercomms.com.
