China Construction Bank has partnered with a Hong Kong-based fintech to deliver the first blockchain-based digital security from a Chinese financial institution.
CCB, one of the “Big Four” banks in the People’s Republic of China, will be the second largest bank worldwide in terms of total assets as of autumn 2020.
Megabank’s plan with the new blockchain-based debt issuance is to raise a total of up to $ 3 billion from individuals and institutions, starting with a tranche of $ 58 million. The digital bonds will be issued through CCB’s offshore branch in Labuan, Malaysia for a minimum amount of USD 100 each and have a term of three months. You pay an annualized rate of Libor plus 50 basis points, or roughly 0.75%.
The innovation is that these bonds are used as symbolized certificates of deposit in the blockchain, which supports the issuance of such bonds with small sums. Non-blockchain-based bonds tend to be sold at higher minimum prices and are therefore limited to professional investors or other banks.
In addition, the tokenized certificates of deposit can be traded on the Fusan exchange. The exchange regulated in Labuan will start live trading of the bonds on November 13th. Since Fusan supports cryptocurrency trading, traders can exchange Bitcoin (BTC) for US dollars to buy the bonds. The transactions are charged with a commission.
Henry Chong, CEO of Fusang, told reporters that the digital exchange intends to initiate similar products denominated in other currencies if the bonds are popular. The annualized bond rate of 0.75% is higher than most dollar bank deposit rates, the Wall Street Journal has pointed out.
Taxpayers in the United States and China, and companies or individuals in Iran and North Korea, cannot purchase digital security. All proceeds from the issue will be deposited in CCB’s offshore branch in Labuan. Labuan is a small island named a tax haven by the Wall Street Journal.
CCB trades “not in Bitcoin or cryptocurrencies”, but “in bank deposits, which is our core business,” said Steven Wong, Chief Operating Officer of CCB Malaysia. The offer is still announced as a great innovation. This is “the first publicly traded bond on a blockchain,” said Felix Feng Qi, CEO of CCB’s Malaysian offshore operations and principal officer of the CCB Labuan office.