From ledgerinsights by Ledger Insights

Zhuhai Huafa Group, the Chinese state-owned conglomerate from the Zhuhai special economic zone, issued a RMB 1.4 billion ($190m) digital bond in Hong Kong on December 23. It used the HSBC Orion digital asset platform, which is operated by Hong Kong’s central securities depository (CSD), the CMU.

It’s the first Chinese digital bond issued in Hong Kong and it plans to take advantage of Hong Kong’s grant scheme for digital bond issuances. A novel aspect is the listing on Hong Kong’s HKEX and in Macau’s MOX, plus the access to mainland investors via HKEX’s Southbound Connect and Euroclear/Clearstream for international investors, with the combination aiding liquidity. Macau is adjacent to Zhuhai.

The three year, 4.5% digital bond was issued via a wholly owned BVI subsidiary that is guaranteed by the parent. Fitch gave it a BBB rating, the same as other conventional parent issuances. Why the low rating for a state backed firm included in China’s Fortune 500? Perhaps because it has significant real estate exposure, even though it is diversified. It was originally purely focused on real estate but since 2012 diversified into finance, technology and trade.

Lianhe Ratings Global, the Chinese international agency also provided a rating. It positioned the issuance as part of the program to internationalize the RMB and develop the offshore RMB market.

Meanwhile, HSBC acted as Joint Global Coordinator, Joint Bookrunner and Joint Lead Manager, Billing and Delivery Bank, Paying Agent and Digital Platform Provider. Campbells provided legal advice to the BVI issuer. Linklaters (Hong Kong) advised the joint lead managers on English and Hong Kong law, and King & Wood Mallesons (Hong Kong) did the same for the issuer.

Last November HSBC Orion was used for a €100m European Investment Bank (EIB) bond issuance, and in September it issued its own HK$1 billion digital bond.