The Hong Kong government has issued their first tokenized green bond on a blockchain, demonstrating the financial potential of distributed ledger technology.

Hong Kong SAR Government issues first tokenized green bond

The Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR Government) today (16 February) announced the successful issuance of HK$800 million of tokenized 1 Government Green Bond Programme (GGBP) green bonds (Tokenized Green Bonds). This is the world’s first tokenized green bond issued by a government.

The one-year, 2-year, HKD-denominated tokenized green bond was priced yesterday at 4.05% following a virtual roadshow earlier this week. It was issued by a consortium of four banks, two of which also acted as custodians for investors. The Hong Kong Monetary Authority’s (HKMA) Central Money Market Unit (CMU) is the bond’s clearing and settlement system, utilizing Goldman Sachs’ tokenization platform – GS DAPTM Value.

The main issuance is 3 bonds representing beneficial interests and cash tokens settled on a delivery vs. payment (DvP) basis between security tokens, representing a legal claim in Hong Kong dollars to the HKMA on a T+1 basis on a private blockchain network. The processes of the bond lifecycle, including coupon payments, secondary trading settlements and redemption at maturity, will also be digitized and executed on a private blockchain network.

Tokenized green bonds are cleared and settled through the CMU, and trade settlements conducted through the CMU benefit from the legal finality of settlements under Hong Kong law. The on-chain records on the private blockchain network will be the legal and final record of ownership of security tokens and cash tokens by all parties on the platform.

As the first tokenized bond governed by Hong Kong law, this issuance demonstrates that Hong Kong’s legal and regulatory environment is flexible and conducive to innovative forms of bond issuance. As the representative of the Hong Kong Special Administrative Region Government under the GGBP, the HKMA will publish a white paper in due course to summarize the experience of this issuance, formulate next steps, and provide a blueprint for the issuance of tokenized bonds in Hong Kong.

Financial Secretary Mr. Paul Chan said: "Hong Kong has been actively promoting the application of innovative technologies in the financial sector, and has been actively exploring new concepts and technologies to enhance the efficiency, transparency and security of financial transactions. Our Policy Statement on the Development of Virtual Assets in Hong Kong published last October stated that we actively embrace financial innovations related to Web3 and promote the sound and prudent development of the market. The successful issuance of this tokenized green bond marks an important milestone as it demonstrates Hong Kong's strengths in combining the bond market, green and sustainable finance, and fintech. The Hong Kong SAR Government will continue to promote innovative development in the financial market."

Mr. Hui Chi-keung, Secretary for Financial Services and the Treasury, said: “Green bond tokenization is one of the pilot projects announced in the Government’s policy statement on the development of virtual assets in Hong Kong. Through a clear policy stance and roadmap, the Government will strive to provide a convenient environment to promote the sustainable and responsible development of the virtual asset industry. We welcome market participants to conduct tokenized issuance in Hong Kong.”

Mr Eddie Yue, Chief Executive of the HKMA, said: "Distributed ledger technology (DLT) has the potential to revolutionize the workings of financial markets. Building on Project Genesis agreed between the HKMA and the BIS Innovation Hub Hong Kong in 2021, the issuance of a tokenized green bond using HKMA-issued cash tokens for on-chain DvP settlement is an important step in promoting the adoption and realising the full potential of DLT in the bond market. Based on the experience of this issuance, the HKMA and the Government will work with other stakeholders to conduct further tokenized issuances to push boundaries and encourage usage."

Mr. Sun Yu, Vice Chairman and Chief Executive Officer of Bank of China (Hong Kong), said: "Bank of China (Hong Kong) is honoured to be one of the Joint Global Coordinators, Joint Lead Managers, Bookrunners and Custodians for the Hong Kong Special Administrative Region's (HKSAR) government's first tokenized green bond issuance. This demonstrates our commitment to deploying cutting-edge technologies to promote green and sustainable finance in Hong Kong, as well as our continued support for the HKMA's Green Bond Programme. The issuance has attracted strong interest from institutional investors, demonstrating the diversity and innovation of Hong Kong's financial markets. We believe that the development of virtual assets and their integration into the government's green bond programme will further consolidate the city's leading position as a green and sustainable finance hub in the Asia-Pacific region."

Mr. Edouard O'Neill, Chief Executive Officer of Credit Agricole Hong Kong Branch and Head of Structured Finance Asia, said: "Credit Agricole CIB is pleased to have the opportunity to work with the Hong Kong Monetary Authority (HKMA) on the Hong Kong Special Administrative Region Government's first tokenized green bond issuance. This issuance marks a major breakthrough in innovation in Hong Kong's capital markets and lays a solid foundation for asset digitization for other market participants in the region. We are honored to support ongoing initiatives to promote the development of green finance and fintech in the city."

Mr. Minton, Head of Digital Assets, Asia Pacific, Goldman Sachs, said: “This bond is a testament to the HKMA’s leadership and innovation in green finance and marks another important milestone in the digitalization of capital markets. We are pleased to play a key role in this landmark issuance, which leverages Goldman Sachs’ tokenization platform, GS DAPTM, to contribute to more efficient and digital debt issuance.”

Ms. Luanne Lim, Chief Executive Officer of HSBC Hong Kong, said: “We are proud to continue to support the Hong Kong SAR Government’s Green Bond Programme through the first issuance of a digital green bond. This transaction marks an important step towards innovation in capital markets and demonstrates the transformative potential of tokenisation in both bond issuance and asset servicing. We look forward to continuing to work closely with the Hong Kong Monetary Authority and industry peers to strengthen Hong Kong’s position as a regional green finance and fintech hub.”

Mr. Rajeev Mittal, Managing Director, Asia Pacific (ex-Japan), Fidelity International, said: "We are delighted to participate in this innovative issuance on behalf of our clients, which is an important first step for Hong Kong and digital asset adoption. We fundamentally believe that distributed ledger technology has the potential to change financial markets for the better, from the democratization of financial services to cheaper and more diversified investments through tokenization."

The tokenized green bond was issued in accordance with the Hong Kong SAR Government’s Green Bond Framework. Vigeo Eiris provided a Second Party Opinion for the Green Bond Framework. The tokenized green bond also received a Green and Sustainable Finance Certificate (pre-issuance stage) from the Hong Kong Quality Assurance Agency.

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This announcement is not being made available, in whole or in part, directly or indirectly, in the United States of America, Canada, Australia or Japan or in any other jurisdiction where such distribution or dissemination is prohibited by applicable law. This announcement is for information purposes only and is not intended to, and should not be construed as, an offer or solicitation of an offer to buy securities in the United States or any other jurisdiction. The securities described herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or the laws of any state of the United States and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and in compliance with all applicable state laws. No public offering of such securities will be made in the United States.