Banking News

World Bank Taps CBA for Inaugural Blockchain Bond “Bond-I”

(14 August 2018 - Australia) The World Bank has selected CommBank as the sole arranger of the first blockchain enabled bond labelled ‘Bond-I’. The A$ Kangaroo bond issuance will be created, allocated, transferred, managed and distributed using a proprietary blockchain platform from Washington by the World Bank and Sydney by CBA. The AAA rated Blockchain Offered New Debt Instrument has been structured with input from QBE, the Treasury Corporation of Victoria and Northern Trust and will be used to raise capital for the World Bank’s Reconstruction and Development division. Blockchain has the potential to streamline processes for raising capital and trading securities, improve operational efficiencies, and enhance regulatory oversight.

The blockchain platform was designed and developed by the Sydney based CBA Innovation Lab’s Blockchain Centre of Excellence which had already successfully tested prototype blockchain enabled bond issuance by a government entity in a partnership with Queensland Treasury Corporation (QTC). As part of its mandate to reduce poverty and promote lasting development, the World Bank issues up to US$60 billion annually in bonds for sustainable development. The debt instrument is expected to raise between US$50 - 100 million to help fund sustainable development. The organisation is increasing its focus on helping countries transition to sustainable economies that are technology-led, while exploring the benefits of disruptive technologies, such as blockchain, across all its operations to accelerate progress towards the Sustainable Development Goals. Since 2009, CBA has acted as lead manager for several IBRD bond issuances in the Australian and New Zealand capital markets.

CBA and World Bank are using a private Ethereum blockchain for this project. Ethereum currently has the largest and most active development community globally, and offers the functionality require however other blockchains are developing rapidly and CBA remains open to other options in the future. An independent review of the CBA blockchain platform’s architecture, security and resilience was conducted by Microsoft and King & Wood Mallesons acted as deal counsel on the bond issue and advised on the legal architecture for its implementation. CBA also recently partnered with a range of logistics companies to apply blockchain to trade finance operations by tracking a shipment of agricultural goods from Victoria to Germany with documentation, location, and environmental conditions monitored in real-time along the entire journey.

“We take a collaborative approach to innovating and have a track record of partnering with other leading financial institutions, government bodies and corporates to innovate through blockchain. We believe that this transaction will be ground breaking as a demonstration of how blockchain technology can act as a facilitating platform for different participants. We are delighted to have partnered with the World Bank and fully support its vision of making innovative use of technology such as blockchain to increase the efficiency of financing solutions to better achieve their goal to end extreme poverty” said James Wall, CBA Institutional Banking & Markets International Executive General Manager.

Arunma Oteh, World Bank Treasurer, added: “Since our first bond transaction in 1947, innovation has been an important hallmark of our success with leveraging capital markets for development. Given the transformative role of emerging technologies, we continue to prudently seek opportunities for us to meet investor needs as well as the needs of our clients. I am therefore delighted that after a year of working with Commonwealth Bank of Australia, we are in a position to launch our first blockchain bond transaction. Microsoft’s experience and support have also been instrumental to achieving this historic milestone. Our sincere appreciation to our pioneer blockchain bond investors, who are partnering with us on this transaction because of our common desire to strengthen markets, improve efficiency and transparency, and enable more robust issuance processes. Our goal is to continue to harness innovation for the benefit of markets and our mission of ending poverty and boosting shared prosperity.”

Sophie Gilder, Head of Blockchain, Innovation Labs, CBA said: “We know blockchain has the potential to revolutionise financial services and markets, and this transaction is a significant step towards that future state. By working collaboratively with the World Bank, we were able to find solutions to technical and legal considerations to make this ground breaking transaction a reality. This project further solidifies CBA’s position at the forefront of blockchain technology and we are excited to build on this, in partnership with our clients.”

Separately, ING Australia commenced its first A$ covered bond transaction worth A$1 billion as it moves to compete with the majors. Debt capital market activity on a cross currency basis remains quiet among Australian corporates due to the cost of swapping the US or eurozone currency back into the AUD. Underwriting the bond transaction was ING, NAB and Deutsche Bank and also involved were RBC and Singapore’s DBS. The bond deal was priced 58 basis points over the five-year benchmark.