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Token technology set to disrupt private markets

By Aaron Woolner

09:55, 9 November 2021

 Singapore's central business district
Singapore's central business district - Photo: Shutterstock

The fractionalisation possibilities offered by token technology powered by blockchain is set to disrupt the global bond market and bring in a new base of investors and issuers to the asset class, according to a senior digital exchange executive. 

While the total market capitalisation of the crypto sector recently topped $3trn for the first time, private markets are even bigger, the syndicated loan sector alone issues $4trn of new debt each year. 

Oi Yee Choo, chief commercial officer at Singapore-based ADDX, a digital securities exchange focused on the private market, told that the use of blockchain technology allows bond issuers to write paper at much smaller amounts than is currently viable on global bond markets, broadening both the issuer and investor base. 

Oi Yee Choo, chief commercial officer of ADDXOi Yee Choo, chief commercial officer of ADDX - Photo: ADDX

Blockchain allows smaller bond issues

“ADDX sees the bond market as increasingly disruptive with digitisation because it's so inefficient today. The minimum size you raise with through a bond is roughly $250m. And for a lot of the smaller companies that's too big and too expensive.”

ADDX, which is licenced and regulated by the Monetary Authority of Singapore (MAS), has conducted a number of smaller value bond issues.

For example in March, Astrea VI private equity bonds, which were tokenised by ADDX’s iSTOX digital platform and reduced the minimum investment ticket to $20,000, from the typical US$200,000. Astrea is backed by Temasek, an investment vehicle owned by the Singapore government. 

Helped Astrea, CGS-CIMB raise debt

While in May this year, ADDX launched a SGD150m ($112m) short-term debt offering for Southeast Asian financial services provider CGS-CIMB, again via its iSTOX platform.

The first SGD10m tranche was oversubscribed by accredited individual and corporate investors, according to Choo, the entire SGD150m programme was carried out using digital securities with no traditional issuance.

According to MAS’ rules an accredited private investor is one with either; SGD300,000 income in the past 12 months, net financial assets of SGD1m or net assets SGD2m. 


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Broadening the issuer base

In most global markets such numbers would class investors as high net worth individuals, but it is estimated that Singapore will have 437,000 millionaires by 2025 according to Credit Suisse - or 7.6% of its current population, bringing accredited investors status to a relatively broad swathe of its residents. 

ADDX is currently issuing a second round of commercial paper with an SGX-listed company, Valuemax, worth SGD100m and Choo says these initiatives are proving “very popular” with investors. 

Changes will take time

“ADDX is opening up a new base of investors because of the fractionalisation. But we are also opening up a new base of issuers. Because if you look at the recent SGD50m sustainable bond deal it is much smaller than a normal bond issuance.

If you went to an investment bank, you would probably have to do something like $200 to 300m minimum ticket in order for them to even get out of bed. It [tokenisation] provides issuers a new avenue for raising capital: previously the minimum bond market threshold was too high,” she added.

Despite the possibilities offered by tokenised bond offering, Choo is realistic that significant changes to the global bond markets may take time to emerge but she is confident that the technology to do so already exists.  

Possibilities to automate services

“It's not something that will happen overnight, because there's obviously a very deep incumbent bond infrastructure out there.

Choo says that tokenisation means it is possible to automate a lot of the post trade services, such as paying coupons, redemptions, rollover, and conducting new issues. 

“Those processes are easily handled by new tech and so are scalable, that's something that we look forward to really deepening the competency next year,” she says. 

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