Chinese State-Owned Bank Stops Digital Bond Sale That Was Drawing Scrutiny

By Serena Ng 

One of China's largest banks halted the planned debut of a digital bond on an exchange outside the country, shortly before the security was scheduled to begin trading on Nov. 13.

China Construction Bank Corp. decided not to proceed with a sale of up to $3 billion in short-term debt in Labuan, an offshore financial center in Malaysia, after the bank's role in the deal and the way investors could trade the securities came under scrutiny in China.

The blockchain-based bond, the first of its kind, was supposed to be listed on the Fusang Exchange, a bourse for digital securities. The exchange said earlier this month that large and small investors could buy the bond for as little as $100 by paying the exchange cash or bitcoin.

Under the earlier plan, funds raised from the bond sale, which would all be in U.S. dollars, would be deposited at the Labuan branch of China Construction Bank. Bondholders would earn annualized interest of Libor plus 50 basis points, or about 0.75%, significantly above most short-term rates on bank deposits.

The Fusang exchange said Monday that it was notified by a unit of China Construction Bank that the listing plan has been withdrawn. A branch of the Chinese state-owned bank was the lead arranger and listing sponsor of the bond, which would have been issued by a special-purpose vehicle.

The planned bond sale, which was reported earlier this month, created some controversy in China because of its association with cryptocurrencies.

Three years ago, Chinese authorities banned bitcoin exchanges in the country and fundraising via cryptocurrencies, to curb speculation in the asset class and prevent cryptocurrencies from being used for illegal activities or as a way to move money out of the country.

The price of bitcoin has soared more than 40% over the past month, and recently traded above $18,500, according to CoinDesk.

Before the digital-bond sale was suspended, a representative of China Construction Bank said the bank wasn't dealing in bitcoin and would be receiving funds only in U.S. dollars. He didn't respond to a request for comment on Monday.

A prospectus for the bond sale said the Covid-19 pandemic has accelerated China Construction Bank's push into online financial services such as microlending. The bank, which has hundreds of millions of individual and business customers, also listed inclusive finance and financial technology among its strategies.

Henry Chong, Fusang's chief executive, said that before the deal's suspension, the exchange saw "overwhelming investor interest and demand" for the bond and had received inquiries from potential bond issuers, including other banks in the region.

"We are frankly disappointed at the outcome, but we know the model works, " Mr. Chong added. Investors who committed funds to the new digital bond will get their money back, the exchange said.

Zhou Wei contributed to this article.

Write to Serena Ng at [e-mail]

(END) Dow Jones Newswires

November 23, 2020 01:17 ET (06:17 GMT)

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