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China Construction Bank partnered with a Hong Kong-based fintech to issue the first blockchain-based digital security issued by a Chinese financial institution.
One of the “Big Four” banks in the People’s Republic of China, CCB is ranked as the second largest bank in the world by total assets as of autumn 2020.
The megabank’s plan with the new blockchain-based debt issue is to raise up to $ 3 billion in total, starting with a $ 58 million tranche, from individuals and institutions. The digital bonds will be issued through an offshore branch of CCB in Labuan, Malaysia for a minimum of $ 100 each and will have a maturity of three months. They pay an annualized interest of Libor plus 50 basis points, which is approximately 0.75%.
The innovation is that these bonds are used as tokenized certificates of deposit on the blockchain, which supports the issuance of such small-sum bonds; Non-blockchain-based bonds are generally sold at higher lows and are therefore limited to professional investors or other banks.
Additionally, tokenized certificates of deposit will be tradable on the Fusan exchange. The exchange, which is regulated in Labuan, will launch live bond trading on November 13. Notably, as Fusan supports cryptocurrency trading, traders will be able to trade Bitcoin (BTC) for US dollars to buy the bonds. Transactions will be charged at a fee.
Fusang CEO Henry Chong told reporters that if bonds are popular, the digital exchange intends to launch similar products denominated in other currencies. The 0.75% annualized interest rate on bonds is higher than most US dollar bank deposit rates, the Wall Street Journal pointed out.
Tax residents of the United States and China, as well as entities or persons in Iran and North Korea, will not be able to purchase digital security. All proceeds from the issue will be deposited at the CCB’s Labuan offshore branch. Labuan is a small island and is described by the WSJ as a tax haven.
CCB “does not trade in bitcoin or cryptocurrencies”, but rather “accepts bank deposits, which is our core business”, said Steven Wong, COO of CCB Malaysia. The offer is however heralded as a major innovation. This is “the first publicly traded debt security on a blockchain,” said Felix Feng Qi, CEO of CCB’s Malaysia Offshore Operations and principal officer of CCB Labuan’s subsidiary.
