SYDNEY: The World Bank has priced the world’s first public bond created and managed using only blockchain in a A$100 million ($73.16 million) deal designed to test how the technology might improve decades-old bond sales practices.
Commonwealth Bank of Australia, the sole manager of the deal, said in a statement that the two-year bonds had priced to yield 2.251 percent and would settle Aug. 28.
The prototype deal, dubbed a “Bondi” bond – standing for Blockchain Operated New Debt Instrument as well as a reference to Australia’s most famous beach – is being viewed as an initial step in moving bond sales away from manual processes towards faster and cheaper automation.
“You’re collapsing a traditional bond issuance from a manual bookbuild process and allocation process, an extended settlement then a registrar and a custodian, into something that could happen online instantaneously,” James Wall, executive general manager at CBA told Reuters in an interview earlier this month.
The World Bank, whose bonds carry an AAA rating, regularly uses its borrowing power to help develop new bond markets as well as pioneering new means for selling and trading the securities.
It issues between $50 billion and $60 billion a year of bonds to back economic progress in developing countries.
Australia is a popular test site for market developments because of its well-established financial infrastructure and the familiarity of international investors with the Australian dollar, which is one of the most-traded currencies in the world.
Earlier this year Russia’s MTS, a telecoms operator, and Sberbank claimed a world-first blockchain bond.The deal, for 750 million rubles ($11.20 million) of 182-day paper, was however privately placed, rather than offered for wider auction, as is the norm and the case with the World Bank deal.
While there have been other prototypes or parallel simulation blockchain projects in the market before, CBA said the World Bank bond will be the first time that capital is raised from public investors through a legally valid bond issuance that uses blockchain from start to finish.
CBA set the price for the “kangaroo” deal at 23 basis points above benchmark rates. Kangaroo bonds are bonds issued in Australian dollars by foreign institutions.
The bank’s blockchain push comes as the Australian Securities Exchange plans to switch to using distributed ledger (blockchain) technology to clear and settle equities trades from 2020 to help cut costs.