Hong Kong has launched a program to support up to 321,184 USD for each digital bond issuance, aiming to promote the digital securities market and strengthen its position as a cryptocurrency financial center.
On November 28, the Hong Kong Monetary Authority (HKMA) announced the Digital Bond Support Scheme (DBGS) with the aim of encouraging the adoption of tokenization technology in the capital market. The scheme will partially finance the issuance costs of digital bonds, contributing to reducing barriers for businesses and promoting the development of this market. The move comes in the context of Hong Kong's efforts to affirm its position as the world's leading cryptocurrency financial center.
The DBGS program, which will begin accepting applications on November 28, 2024 and run for three years, will cover up to 50% of the issuance costs of digital bonds for eligible issuances. The maximum subsidy for each full issuance is US$321,184 (HK$2.5 million), and each company can apply up to two times. The program also provides a half-subsidy of US$160,597 (HK$1.25 million).
Conditions of participation and objectives of the program
To qualify for the half-funding, the bonds must be issued digitally on a platform operated by the Central Money Market Management Unit (CMU) and issued in Hong Kong by a company with a “significant presence” there.
For full funding, the requirements are more stringent, including a minimum issue size of US$128.5 million (HK$1 billion), a minimum number of investors of five, and listing on the Stock Exchange of Hong Kong (SEHK) or a platform licensed by the Hong Kong financial regulator.
According to Eddie Yue, Chief Executive of the HKMA, DBGS is a direct result of Project Evergreen, an initiative commissioned in 2021 to explore the application of distributed ledger technology in the financial sector. Yue noted that many bond issuers are still hesitant to adopt tokenized bonds. Therefore, the HKMA designed DBGS as an “additional incentive” to promote the adoption of this technology.
The launch of DBGS follows the successful issuance of a US$100 million (HK$800 million) tokenized green bond under the Green Bond Programme on 16 February 2024. “Tokenization is growing rapidly. Market estimates suggest that the total notional value of tokenized bonds issued globally over the past decade exceeds US$10 billion,” said Mr. Yue.
The HKMA's move comes as the Hong Kong government is actively promoting the development of the cryptocurrency industry. On the same day the DBGS was announced, the Financial Times reported that Hong Kong authorities are considering exempting hedge funds, private equity funds and family offices from taxes on cryptocurrency profits.
The proposal, which is under a six-week consultation, includes tax exemptions for investments in private credit, offshore assets and carbon credits. The government aims to cement Hong Kong’s position as a leading cryptocurrency financial hub.
The fact that ZA Bank, Hong Kong's largest virtual bank, launched a direct fiat-to-bitcoin trading service for retail users on November 25, 2024, further confirms this trend.