UOB and ADDX announced, on Oct 7, that they have collaborated on the digitalisation and digital custody of the inaugural sustainability-linked bond launched by Sembcorp Industries (SCI) on Sept 29.
In the announcement made by Sembcorp, UOB was appointed as a joint lead manager for the sustainability-linked bond issued by Sembcorp’s wholly-owned subsidiary Sembcorp Financial Services.
UOB has also partnered with ADDX to custodise and manage a $50-million portion of the bond.
According to the joint statement released by UOB and ADDX, the digitalisation and digital custody of the bond comes amid a rise in the use of digital securities to enhance the efficiency of bonds and other fixed income instruments.
See: CapitaLand China Trust secures $150 mil maiden sustainability loan from UOB
Digital bonds, which use technologies such as blockchain and smart contracts to eliminate manual processes in the bond’s custody and post-trade administration, can be managed more efficiently as coupon payments can be carried out with self-executing instructions.
They are also less error-prone and are less costly for the issuer, investors and the banks underwriting the deal compared to traditional bonds.
Commenting on the partnership, Frederick Chin, head of group wholesale banking and markets at UOB says the bank believes “in being at the forefront of providing progressive financial solutions that meet the needs of companies.
“The collaboration with ADDX helps our corporate clients such as Sembcorp tap the benefits of digital bond issuance for security, time and cost efficiencies. Such initiatives enable our corporate clients in Singapore and across the region to engage a wider base of investors and enjoy the benefits of asset tokenisation. The use of distributed ledger technology (DLT) and asset tokenisation has strong potential in radically improving how capital markets can operate in the future and it is important our clients can take advantage of such new technologies,” he adds.
“In the past year, digital securities have achieved a high level of acceptance among blue-chip issuers of bonds and other securities globally. The collaborative work by UOB and ADDX was pioneering in nature because it involved a sustainability-linked bond,” says Choo Oi Yee, chief commercial officer of ADDX.
“Digital securities are in fact well-suited for this use case, because smart contract technology is designed to enable automated actions throughout the life cycle of a bond, including adjustments to the coupon rate, if needed. As digital bonds enter a phase of widespread adoption, the cost of fundraising through bonds and other fixed income instruments will continue to fall, and companies that embrace the new technology will be able to raise capital more efficiently.”
