BBVA and Red Eléctrica, of Spain, participated in a syndicated loan using blockchain. The € 150 million agreement – granted by BBVA, BNP Paribas and MUFG – was delivered in record time (according to BBVA) using BBVA's proprietary distributed ledger technology (DLT) platform.
According to Teresa Quirós, financial director of Red Eléctrica: "this transaction is part of our company's drive to push digital transformation and innovation as levers for growth and efficiency, enabling us to address the challenges that changing the energy environment represents for our company".
A global first?
BBVA states it as a global first (although, probably, Daimler AG and Landesbank Baden-Württemberg were earlier and similar). The transaction represents one of the series of results obtained within the group of pilots in progress to explore potential applications of DLT.
The process of negotiating the entire credit line has been closed on the blockchain network. This has allowed a significant acceleration of what is traditionally a long elaborate paper process, ensuring at the same time the full control of the documentation and the transparency of the negotiation. For BBVA the use of the blockchain concerns the innovation aimed at:
- offering a better customer experience
- automate the process for ease
- minimize operational risk due to the principles behind the blockchain.
Blockchain and corporate loans
Blockchain allows lenders to approve business loans much faster than before. Digital transformation actually creates opportunities for business improvement, and BBVA is committed to technologies such as blockchain, which help it offer innovative financing approaches to its corporate customers.
The advantages offered by Blockchain are more tangible in processes involving a considerable number of parties, such as in syndicated loan projects. This transaction used a private blockchain network through which six (highly prepared) entities participated:
- the borrower (Red Eléctrica)
- three financing banks: BBVA, as the only bookrunner, BNP Paribas and MUFG
- two legal advisers: Linklaters S.L.P. and Herbert Smith Freehills LLP.
Collaboration is essential to reach an agreement for these types of financial agreements, in particular for the implementation of the different nodes that make up the private network. In addition to the transaction itself, BBVA says so and the other parties involved have shared and learned by participating in a real syndicated loan.
In practice, every phase of the negotiation recorded on the DLT network, together with a user code and timestamp (which identifies the moment in which a particular event occurred). Therefore, all the nodes that participate in the blockchain private network (Hyperledger) have access and share the same pertinent information relevant to the negotiation process. This means that they have been kept informed of the state and progress – because they could rely on the immutability of the information.
Once the loan agreement is signed, a unique document identifier has been registered in the Ethereum blockchain public network (in particular, in its test network, & testnet & # 39;) to ensure immutability, safeguarding your privacy at any time.
Ricardo Laiseca, head of Global Finance at BBVA, said: "BBVA is simplifying business financing processes and is betting on the use of new technologies, such as blockchain, to digitize lending negotiations and negotiations. We work with our corporate clients to be able to provide them with the most innovative financing solutions."
Enterprise Times: what does this mean?
Ignoring BBVA's claims of a "global first" (so many in the blockchain area claim to be the first), this is a result – because it led to a real loan. Red Eléctrica will have achieved its goal.
From this emerge two tangential points. The first concerns the use of a proprietary Hyperledger-based private blockchain: this makes sense once all borrowers are ready. Which leads to the second point: what BBVA does not explore is the amount of effort "through which you are (highly prepared)" parties have been able to work together. If this aspect requires too much effort, "cure" could be worse than "the paper problem". On the other hand, presumably, these six parties have agreements in place so that the second and subsequent funding of an agreement will be simpler: a participant only has to prepare once.