French financial services giant Societe Generale Group has issued about $112 million worth of bonds in the form of a security token on the public ethereum blockchain.
Announced today, a subsidiary called Societe Generale SFH used the OFH token (obligations de financement de l’habitat, or home financing obligations) to represent 100 million euros of covered bonds, a type of security that is backed by specific assets but remains on the issuer’s balance sheet. However, according to a report published Tuesday by bond rating agency Moody’s Investors Service, Societe Generale was “the sole investor,” meaning the firm issued the securities to itself and no outside buyers were involved.
The bond has a five-year maturity with a 12-month extension period, Moody’s said. It is pari passu (“on equal footing”) with other covered bonds of the issuer, meaning if the company were to fail, whoever held the tokens at that time would be repaid the same fractional amounts at the same time as regular bondholders, the report said.
The rating agency said it considers the use of blockchain technology “credit positive” for the issuer, in part because of increased transparency and a reduced likelihood of errors “arising from the complexity and the number of intermediaries involved in issuing covered bonds using traditional means.” The pilot was designed by Societe Generale’s blockchain subsidiary Societe Generale FORGE, “one of the 60 internal startups launched via the Internal Startup Call, the Group’s intrapreneurial programme,” the company said.
Big Four professional-services firm PwC advised the project on the technology and the French law firm Gide Loyrette Nouel was a legal advisor, SocGen said.
“This live transaction explores a more efficient process for bond issuances,” the firm said in a press release, adding:
“Many areas of added value are predicted, among which, product scalability and reduced time to market, computer code automation structuring, thus better transparency, faster transferability and settlement. It proposes a new standard for issuances and secondary market bond trading and reduces cost and the number of intermediaries.”
Societe Generale has been involved in a number of enterprise blockchain projects. It was a founding member of the IBM-powered trade finance platform we.trade in 2017 and commodity trading platform Komgo SA in 2018. Earlier this month, Societe Generale-owned private bank and wealth manager Kleinwort Hambros announced it had launched an exchange-traded note (ETN) with a focus on investing in blockchain companies.
More broadly, a growing number of enterprises have been experimenting with public blockchains, including big players, but issuing actual digital securities by a global investment bank is rare. In September, the Austrian government announced a pilot to use the ethereum blockchain to notarize the auction of a government bond worth $1.3 billion.
Two months later, Spanish bank BBVA recorded a $150 million syndicated loan on ethereum, time-stamping data on a loan issued for Red Electrica, Spain’s national electrical grid operator. Among startups, back in 2017, Nivaura initiated a bond denominated in ether for the London-based luxury retail startup LuxDeco.