HSBC underwrites as KB Kookmin Bank issues South Korea’s first USD digital bonds

KB Kookmin Bank has officially become the first South Korean bank to raise $100 million through a blockchain-based dollar bond. The company used HSBC’s Orion digital asset platform for the two-year note.

HSBC is acting as the sole lead manager of the deal, as KB Kookmin Bank said it expects to offset some issuance costs through the HKMA’s Digital Bond Grant Scheme. 

What is a digital bond? 

A digital bond is the same as a traditional bond, except that it uses blockchain technology. Usually, when a bank issues a bond, the process involves many middlemen like custodians and registrars and it can take two or more days for the money and the bond to actually change hands.

With digital bonds, the bank and the investors share a single digital ledger that records who owns the bond and tracks payments instantly. Because everyone sees the same information, there is less paperwork and a lower risk of mistakes.

KB Kookmin Bank recently raised $100 million through a blockchain-based dollar bond, becoming the first South Korean bank to do so. HSBC’s Orion digital asset platform is acting as the sole lead manager for the two-year note.

The bank also recently finished testing a Korean won stablecoin for payments and remittances that cut transfer fees by 87% compared to SWIFT, the traditional banking system. 

KB Kookmin Bank’s bond connects to the clearing and settlement system run by the Central Moneymarkets Unit (CMU), an arm of the Hong Kong Monetary Authority (HKMA). 

The global digital bond market remains small in comparison to the $133 trillion traditional bond market, with roughly $1.6 billion issued in the 18 months through late 2024. But issuance of digital bonds has recently accelerated following the development of the regulatory framework and infrastructure. 

The World Bank Group’s International Finance Corporation has both issued and invested in digital tokenized bonds across several distributed ledger platforms, viewing them as a way to lower barriers for emerging-market issuers and investors.

Tokenized bond ripple spreads to Hong Kong 

Hong Kong is working hard to become the center for digital bonds and is building the rules to make these deals easier and safer.

The HKMA recently announced a new 21-member “Tokenised Bond Expert Group” that includes major banks like HSBC, Standard Chartered, and JPMorgan, as well as law firms and crypto companies like HashKey Group. Their job is to review Hong Kong’s laws and fix any rules that make digital bond trading difficult.

Hong Kong already has a track record of success. The government has issued several digital bonds totaling about HK$7.8 billion (roughly $1 billion) in multiple currencies, including the U.S. dollar and euro. 

The HKMA also offers a grant scheme to pay for up to half of a digital bond’s issuance costs, which KB Kookmin Bank is using for its deal. 

Across Asia, Japan is allowing digital local government bonds, while Korean brokerages like Mirae Asset and Shinhan Investment have already issued digital bonds.