As part of efforts to broaden the suite of products on its digital exchange, DBS has priced a S$15 million (US$11.3 million) digital bond, marking its first security token offering (STO).

The bond, which comes with a six-month tenor and coupon rate of 0.60% per annum, was issued by way of private placement. DBS is the sole bookrunner for the transaction.

The bank says the issuance paves the way for other issuers and clients to tap on the DBS Digital Exchange’s (DDEx) capabilities to access capital markets for their funding needs and sets the stage for more STO issuances and listings on the platform as asset tokenization turns mainstream.

Eng-Kwok Seat Moey, group head of capital markets at DBS, notes that the asset digitalization via the issuance of security tokens presents a tremendous opportunity for corporates seeking alternative platforms such as DDEx to raise funds from Asia-Pacific’s burgeoning private capital markets. The Asia-Pacific region currently accounts for nearly one-third of the global private equity market, which reached a record US$4.73 trillion in 2020.

'Significant milestone'

“Our maiden STO listing on the DBS Digital Exchange is a significant milestone, as it highlights the strength of our digital asset ecosystem in facilitating new ways of unlocking value for issuers and investors,” Eng-Kwok says.

“This cements our ability to provide integrated solutions across the digital asset value chain, from deal origination to tokenization, listing, trading, and custody, which in turn opens the door for more STOs on DDEx. We expect asset tokenization to increasingly become more mainstream as more of our clients start to embrace security token issuance as part of their capital fund-raising exercise which we believe will boost Singapore’s ambitions to be a digital asset hub in Asia.”

According to DBS, the digital bond strictly adheres to the current bond legal framework, thereby according investors the same legal certainties and protections over their rights as traditional bonds.

Clifford Lee, global head of fixed income at DBS, says the STO marks the first of many steps in the journey to evolve the traditional bond issuance into a broader digital ecosystem where more inclusive issuer and investor participation can be rapidly developed.

Smaller lot sizes

“While most bond tokenization exercises announced in Asia to date tend to be repackaged forms of a conventional bond issue, the current transaction directly combines existing legal and tax infrastructure requirements with a direct issuance on the digital exchange in smaller lot sizes. This bond token structure was only made possible because of the progressive development of Singapore’s legal and tax infrastructure, which can facilitate more STO issuances to broaden and deepen our capital markets,” Lee adds.

To encourage broader participation from investors, the digital bond will be traded in board lots of S$10,000. This is a significantly smaller denomination compared to traditional wholesale bonds, which typically require investment and trading amounts in multiples of S$250,000. This also highlights DDEx’s ability to offer tokenized assets for trading at much smaller denominations as compared to traditional venues and conventional securities, driving liquidity and lowering barriers to access for investors. With the listing of the digital bonds on DDEx, the securities are now available for secondary trading among institutional and accredited investors who are either members or applicable end clients of DDEx members.

Launched in December 2020, DDEx is part of an integrated digital asset ecosystem which leverages on blockchain technology to provide clients with a secure and transparent platform to raise funds from the private market. It also provides an avenue for investors to invest in and trade traditionally illiquid asset classes. Participants can also benefit from comparatively shorter settlement cycles and tap on institutional-grade custodial services provided by DBS Bank.

 DDEx has enjoyed strong market traction since its launch. Daily trading volumes have increased 10-fold from the initial week of launch, and the exchange currently serves over 120 participants. DBS also holds over S$80 million in digital assets in its custodial services.