Blockchain Redefines Corporate Bond Lifecycle
Just as trading electronification and the introduction of fixed-income exchange-traded funds have done, blockchain will change the rules of the game for corporate and sovereign debt.
Corporations that decide to issue debt and manage the debt’s lifecycle on a blockchain can reduce their overhead significantly, according to Jonny Fry, CEO of TeamBlockchain.
“It is 90 percent cheaper to issue a bond on a blockchain and taking it to various third parties,” he said during a recent webinar hosted by his firm.
Much of the savings come from disintermediating the existing middlemen, such as payment agents and custodians.
The lower overhead lets issuers go to the debt well more frequently with a smaller bucket, noted Fry. “Instead of doing £100 million, which has been the preserve of the largest companies in the world, you will be able to do much smaller issuances.”
Besides simplifying the raising of capital, bonds issued via blockchain also benefit from more accurate record keeping when it comes time to pay dividends to the bondholders.
Share registers are often incorrect and cannot provide who is the share or property owner in real-time since they were not designed to provide that data in real-time, according to Fry.
The increased accuracy could level the playing field when paying dividends or rental income to the bond or property holder.
“If you hold shares on those payment dates you are entitled to that it come,” he said. “If you held it for two months and 29 days and are forced to sell it on the very last day, you would not be entitled to that income.”
The accurate ownership record could permit issuers to make payments in pro-rata fashion in the future.
Some British, French, Spanish companies already have taken the plunge and issued bonds on blockchains.
“The benefit of blockchain issuance has not been lost of corporations,” said Fry. “This is why we’ve seen companies like Maersk, Walmart, Nike, Facebook, Fidelity, and Goldman Sachs all turning to look at this technology and looking at digital assets as a real way to re-engage and provide a better value for money and give themselves an edge over their competitors.”
The new venue hopes to attract 15 to 20 listings over the next year.
An increasing number of firms are using distributed ledger technology.
Societe Generale paid for covered bonds in digital euros issued by Banque de France via blockchain.
The equity derivatives clearing organization has selected Axoni to develop and implement DLT.
Nasdaq’s Market Technology business will use R3’s enterprise blockchain software Corda.