Clifford Chance

The Hong Kong Monetary Authority launches the Digital Bond Grant Scheme to promote the development of the digital securities market in Hong Kong.

On 28 November 2024, the Hong Kong Monetary Authority (the HKMA) launched the Digital Bond Grant Scheme (the DBGS) to promote the development of the digital securities market in Hong Kong and to encourage broader adoption of tokenization technology in capital market transactions.

The DBGS covers 50 per cent. of the Eligible Expenses (as defined below) for each digital bond issuance, up to either (i) HK$1.25 million (a Half Grant), if the digital bond issuance meets the Basic Requirements (as defined below), or (ii) HK$2.5 million (a Full Grant), if the digital bond issuance meets the Basic Requirements and all Additional Requirements (as defined below).

The HKMA has stated in its "Guideline on the Digital Bond Grant Scheme" that whilst the eligibility of each digital bond issuance to qualify for the DBGS will be determined on a case-by-case basis, a "digital bond" generally refers to a bond that leverages distributed ledger technology (DLT) for the digital representation of ownership, which may include legal titles and/or beneficial interests in the bond.

Subject to certain criteria, the "Eligible Expenses" of a digital bond issuance eligible for reimbursement under the DBGS include fees to DLT platform providers, fees to Hong Kong-based arrangers, fees to Hong Kong-based legal advisors, fees to Hong Kong-based auditors, fees to Hong Kong-based accountants and fees to Hong Kong-based rating agencies, as well as listing fees to The Stock Exchange of Hong Kong Limited (SEHK) or virtual asset trading platform(s) (VATPs) licensed by the Securities and Futures Commission (SFC), and the Central Moneymarkets Unit (CMU) lodging and clearing fees.

Basic Requirements 

To qualify for the Half Grant under the DBGS, the digital bond must satisfy the following basic requirements:

• it must be issued in Hong Kong, with at least half of the involved lead arranger(s) being recognised arrangers with substantial Hong Kong debt capital market operations; and
• (i) it must be issued on a DLT platform operated by the CMU or (ii) the team involved in the development and/or operations of the DLT platform and other digital aspects of the issuance must have substantial Hong Kong presence.

Additional Requirements

To qualify for the Full Grant under the DBGS, the digital bond must satisfy the Basic Requirements and the following  Additional Requirements:

• it must be issued on a DLT platform provided by an entity that is not an associate of the issuer;
• it must be issued at a minimum size of HK$1 billion equivalent (all tranches combined, if applicable);
• it must be issued, at issuance, to five or more investors that are not associate(s) of the issuer or DLT platform provider(s) of the issuance; and
• it must be listed on (i) the SEHK, or (ii) VATPs licensed by the SFC.

Applications for the DBGS commenced on 28 November 2024 and will remain open for an initial period of three years. The HKMA has stated however that applications can be made for digital bonds issued on or after 16 October 2024. A formal application can be submitted by the issuer, the lead arranger(s) and/or the DLT Platform provider(s) within three months after the bond is issued. Each issuer, including its associates, is eligible to receive subsidies under the DBGS for up to two digital bond issuances.

We expect that, as with the Green and Sustainable Finance Grant Scheme which has proven to be popular, corporate issuers and their advisers will be incentivised to consider the issuance of digital bonds to take advantage of the grants available under the DBGS.  

Our experience

In September 2024, Clifford Chance advised The Hong Kong and Shanghai Banking Corporation Limited (HSBC) on the issuance of HK$1,000,000,000 3.60 per cent. digitally native notes due 2025 under HSBC's Medium Term Note Programme on the HSBC Orion platform. These notes were the first digital bonds issued by a corporate issuer in Hong Kong.