South Korea: the Korea Housing Finance Corporation aims to support low-to-moderate income families in achieving home ownership I Credit: piu aka (Pexels)
A South Korean state-owned enterprise has issued the country’s first ‘digitally native’ bond from a government entity.
The Korea Housing Finance Corporation exists to provide loans to low-to-moderate income families and provide credit guarantees to homebuilders, among numerous aspects to its operations.
The organisation (whose name is typically abbreviated to HF – for Housing Finance) has successfully issued $200 million (about £147m) in digital bonds – bonds issued using distributed-ledger technology (DLT) – marking the first such issuance by a Korean public institution, according to media reports.
“This is a strategic effort that goes beyond diversifying funding sources to lead the transition to digital finance,” an HF official was quoted by the Seoul Economic Daily as saying. The official added that the organisation would “continue pursuing innovation to build a digital asset ecosystem, which is a key government policy agenda.”
The issuance took place using HSBC’s asset tokenisation platform Orion, which is the same platform selected by the UK government for its planned first digital bond issuance. It is the largest Korean digital bond to date.
DLT & BLOCKCHAIN: EXPLAINED DLT refers to a centralised system for recording, sharing and synchronising transactions across multiple nodes (computers) without a central authority; blockchain is the most prevalent type.
Blockchain bonds on the rise
The number of public sector organisations globally to have issued bonds using DLT – ‘blockchain bonds’ – is becoming increasingly diverse.
The World Bank and European Investment Bank (EIB) have been in the vanguard at a multilateral level; pioneers at a national level have included Hong Kong, the Philippines and Thailand; Export Development Canada (EDC), Canada’s export credit agency, issued the country’s first tokenised bond using DLT a couple of months ago; and cities such as Lugano (Switzerland) and Quincy (Massachusetts, US) have also caught the blockchain bond bug.
The case for tokenised government bonds was analysed in a Bank for International Settlements (BIS) paper published in July last year.
With a total value estimated at $80 trillion (about £59 trillion), government debt comprises the ‘largest and most critical global asset market, and a cornerstone of the financial system’, the eight-page analysis – titled ‘Tokenisation of government bonds: assessment and roadmap’ – noted. Government bond markets similarly ‘serve as a critical source of financing for governments, a trusted savings vehicle for households and businesses and the key locus of central banks’ monetary policy operations.’
Bond tokenisation ‘remains in its early stages but has gained momentum in recent years among both corporates and governments’, the authors wrote, stating that, at their time of writing, more than 60 tokenised bonds had been issued, amounting to a total value of $8 billion.
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‘Bringing innovation to scale’
HSBC said (in a post on LinkedIn) that it was sole arranger for that it described as a ‘digitally native social bond.’
‘This landmark transaction is the first social bond issued on HSBC Orion, the first digitally native bond from a government-owned entity in Korea, and the largest Korean digital bond to date,’ HSBC Corporate and Institutional Banking stated.
‘The deal highlights how digital issuance can broaden access to funding and help channel funding towards worthwhile social outcomes, supporting housing finance and communities in Korea,’ the bank added.
HSBC Securities Korea head of debt capital markets Shinyung Kang described the transaction (in the same LinkedIn post) as “bringing innovation to scale while helping Korea Housing Finance Corporation deliver meaningful social impact and broaden its funding channel.”
The issuance comes less than three months since HF announced that it had issued EUR 800 million-worth of green covered bonds to ‘strengthen ESG management and expand eco-friendly housing finance’ (25 February).
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Government expenses and blockchain
South Korea’s Ministry of Finance and Economy, meanwhile, is looking to test blockchain-based deposit tokens for government expenses, according to media reports last month.
The ministry is to run a pilot project to replace government expense (purchasing) cards with deposit tokens later this year, according to media including Korean-language digital news brand Khan (Kyunghyang Shinmun) and EN-language online news source The Block (16 April).
A ministry press release (available in Korean only) explained that, currently, government departments execute business spending and other related expenses with government-issued credit or debit cards.
‘When processing expenses with deposit tokens, we can pre-set allowable usage times and permitted categories of spending, enhancing overall transparency,’ the release stated.
Experimentation will reportedly centre on Sejong City (Sejong-si), the purpose-built administrative ‘smart’ city that is home to the ‘Government Complex Sejong’.