The Hong Kong Special Administration Region government has priced a new batch of digital green bonds amounting to HK$6 billion (US$767 million), expanding the city’s foray into sustainable and digital finance.

The two-year, multi-currency offering marks the second digital bond issuance by the HKSAR government following its inaugural tokenized green bond amounting to HK$800 million issued in February 2023, which was also the world’s first tokenized sovereign green bond.

The latest offering has achieved several breakthroughs in the field of bond tokenization and issuance.

The bonds are issued in a digitally native format, the first in Hong Kong to do away with the need to first issue in a conventional clearing system and subsequently be converted into digital format, thus streamlining the issuance process.

The bonds are denominated in US dollar, euro, HK dollar and renminbi, and issued under the HKSAR government’s global medium-term note programme, making this the first multi-currency digital bond offering globally. They consist of a HK$2 billion tranche priced at 3.800%, 1.5 billion yuan (US$208.9 million) at 2.900%, US$200 million at 4.749%, and €80 million (US$86 million) at 3.647%.

Expanding investor base

The issuance also broadens investor participation via existing market infrastructure. Facilitated by the Central Moneymakets Unit’s (CMU) external linkages, international investors have the option to access the digital green bonds via their accounts with Euroclear or Clearstream. This expands the bonds' investor base, thereby enhancing liquidity, and could potentially facilitate interoperability across different digital asset platforms and traditional central securities depositories.

The issuer’s green bond documentation, including relevant third-party reviews, can be viewed on the digital asset platform, enhancing transparency and information accessibility by platform participants.

The bonds adopt the International Capital Market Association’s bond data taxonomy (BDT), a standardized and machine-readable language of key economic terms of a bond, key dates as well as other relevant information typically included within a term sheet. The BDT was developed to promote market efficiency and cross-system interoperability, making this the first issuance by a sovereign, supranational and agency issuer and the first green bond to adopt the BDT.

The offering attracted subscription from a wide spectrum of institutional investors globally, from financial institutions (FIs) – including some major asset managers, banks, insurance companies and private banks – to non-FI corporates. Proceeds will be used to finance or refinance projects that fall under the eligible categories set out in the government's green bond framework.

Leadership position

Commenting on the issuance, Hong Kong financial secretary Paul Chan says: "The government has once again issued digital green bonds this year, incorporating various technological innovations. This demonstrates Hong Kong's strengths and leadership position in combining the bond market, green and sustainable finance, as well as fintech. We will continue to promote innovation and application of fintech, explore the use of new technologies to enhance the efficiency, transparency, and security of financial transactions, and foster vibrant development in various sectors of the financial market."

Hong Kong Monetary Authority chief executive Eddie Yue adds: “We hope this issuance would promote the development of the digital securities market and encourage the wider adoption of digitalization technology.”

The CMU provides the clearing and settlement system of the digital green bonds, while HSBC Orion is the digital assets platform.

HSBC, Bank of China (Hong Kong), Crédit Agricole CIB, Goldman Sachs (Asia), ICBC (Asia), and UBS acted as joint global coordinators, joint lead managers, and joint bookrunners. HSBC and Crédit Agricole CIB acted as joint green structuring banks.

The bonds were rated AA+/AA- by S&P and Fitch, on par with the issuer's long-term rating. Vigeo Eiris provided a second-party opinion on the government's green bond framework. The offering also received the green and sustainable finance certification scheme pre-issuance stage certificate from the Hong Kong Quality Assurance Agency.

Allen & Overy acted as legal adviser to the issuer, Ashurst to the platform provider,  and Linklaters to the banks and agents.