Recently, Hong Kong Monetary Authority (HKMA) initiated accepting applications for Digital Bond Grant Scheme (the Grant Scheme) to financially support digital bond issuers for the duration of three years. The Grant Scheme aims to encourage broader adoption of “tokenization technology” in capital markets and foster the development of digital securities markets in Hong Kong.
“Digital bond” is defined as a bond that utilizes distributed ledger technology (DLT) to digitally represent ownership, which may encompass legal titles and/or beneficial interests in the bond. Each eligible issuer, including its associates, may receive subsidies under the Grant Scheme for a maximum of two digital bond issuances.
The Grant Scheme subsidizes:
- up to 50% of the eligible expenses for each digital bond issuances for:
- Up to HK$1.25 million (Half Grant) for issuances meeting basic requirements; and
- HK$2.5 million (Full Grant) for issuances meeting both basic and additional requirements, which are summarized below.
Eligibility Requirements
Half grant
It is available when the issuances meet the following basic requirements:
- It must be issued in Hong Kong with at least half of the lead arrangers recognized as having substantial Hong Kong debt capital market operations; and
- The DLT platform’s development and/or operations team must have a substantial Hong Kong presence or use a DLT platform operated by the Central Moneymarkets Unit (CMU).
Full grant
For a Full Grant, in addition to the basic requirements, the issuance must meet additional requirements, including:
- Being issued on a DLT platform provided by an independent entity;
- Having a minimum issuance size of HK$1 billion equivalent;
- Being issued to five or more non-associated investors; and
- Being listed on the Stock Exchange of Hong Kong (SEHK) or on licensed virtual asset trading platforms (VATP).
Eligible Expenses
The Grant Scheme subsidizes expenses related to the issuance of digital bonds, including:
- Fees to non-associated DLT platform providers;
- Fees to local arrangers (non-associated), legal advisors, auditors, and rating agencies;
- Listing fees on the SEHK or licensed VATPs; and
- CMU lodging and clearing fees.
Additionally, if the digital bond qualifies as a green, social, or sustainability bond, the following grant will be available:
- Eligible general bond issuance costs: covered by either the Grant Scheme or Track I of the Green and Sustainable Finance Grant Scheme (GSF Grant Scheme), up to HK$2.5 million, and
- External sustainability review costs: covered by Track II of the GSF Grant Scheme, up to HK$800,000 for all pre-issuance and post-issuance external reviews combined.
How To Apply
Potential applicants may start with an “optional pre-application consultation” with the HKMA for preliminary feedback on their eligibility.
Formal applications must be submitted within three months of the bond’s issuance.
Conclusion
As tokenization of securities is expected to be more popular this year and HKMA is providing flexible subsidiary programs with options of Half Grant or Full Grant, foreign companies as well as Hong Kong companies may wish to take advantage of the subsidy programs to issue digital bonds and save their issuance costs.