UPRETS RESEARCH | Subordinated Debt Issuing Might Be the Next Digital Security Hotspot
When NLB, Slovenia’s largest bank, was considering issuing two sets of subordinated debts, announcing on Monday, 4th November 2019, it had mandated UBS Investment Bank to arrange a series of meetings with investors in Europe. This stunning event has marked the new beginning of the digital world, of noticing the significance of the subordinated debt issuing for digital security offering, among digitalization designer, issuers and investors.
The Bond-like Security Is Now Tradable
The idea of peer-to-peer of Digital Security Offerings for a bond-like security has never failed to fascinate real estate property owners and digitalization designers for more than five years, however, due to restrictions of technical legal compliance regulations and design difficulties, it has not been realized until Bitbond, an EU lending platform has issued the Security BB1 and claims to own the title of the first Regulated EU digital security to accomplish this feat. As initial trades has only been few, it was just the first day, and thus Bitbond provides a branding-new start to finish the pathway for other promising digital assets to follow.
UPRETS, an integrated real estate digitalization expert, describes the BB1 digital security as follows:
BB1 is a bond-based digitalized security issued with subordinated unsecured debt. Industry: Finance and Real Estate (FSE). Country of issue: Germany. Issued Date: 01-JUL-2019. Maturity: 01-JUL-2029. Fixed coupon: 4.00% p.a. (frequency: quarterly, first coupon date: 01-OCT-2019). Floating coupon: 60% of pre-tax profit of Bitbond Finance (frequency: annually). Par value: 1.00 EUR. ISIN: DE000A2TR7Q2. ITIN: 8WR5-AKBG-X. All coupons and the repayment of BB1 are EUR denominated and paid in XLM to holders of BB1 at the time of a payment due date. Approved securities prospectus according to EU Prospectus Regulation: https://www.bitbondsto.com/files/bitbond-sto-prospectus-de.pdf Callable yearly: next call 31-DEC-2021 at 100%.
Referred from the Digital Securities’ report, since Bitbond completed its offering, two other Blockchain FINTECH Companies have approved that Digital Security Offerings backed with the subordinated debt issuing have been announced. StartMark is the second-first ones which offers bond-like funds to allow a diversified investment in early stage firms, while the other property, Fundament, a digitalized digital asset, namely 56 suites of developing luxury hotels — seeking to raise 250 million Euros.
Why Issuing Bond-like Digital Securities?
Take South-eastern Asian digital market as an example, we have explored the merits and pitfalls of marriage between block-chain digitalization technology and traditional securities in the form of equity interests in the former articles. Nonetheless, for digital transactions in terms of both domestic and international, there is a lack of smooth coordination between the concerned stakeholders may present stumbling blocks for Digital Security Offerings seeking to gain widespread traction. Accordingly, we summarized three main possible reasons for subordinated debt issued digital securities.
A Promising Entrant to the Scene
Following the push to advocate the innovation and experimentation, Monetary Association of Security, or what we usually called MAS, has already launched a regulatory sandbox in November 2018, which promises to allow approved fintech services to operate within certain controlled parameters coupled with appropriate safeguards. As of 1 May 2019, a promising entrant has joined the sandbox in the form of ICHX Tech Pte Ltd (“ICHX”) and its platform named iSTOX. ICHX intends to test commercial deployment for digital securities offerings and its active sandbox tenure under the MAS is set to be completed on 31 January 2020.
Notably, ICHX has received investments from the Temasek subsidiary Heliconia Capital Management, entwined with key executives from both SGX and MAS being appointed to the board of ICHX. According to their team, iSTOX aims to usher in “A brand-new time for capital fundraising through the use of digital security offerings backed with subordinated debts… and add to the vibrancy of Asian capital market ecosystem”. The launch and approval of ICHX has been served as an entrant under the MAS regulatory sandbox framework which indicates that it can officially commence activities as a market operator. In the meantime, iSTOX will be one of the first legally recognized digital security offering platforms operating under the direct supervision of a government authority.
In line with the proposed amendments to the RMO regime, this development may be seen as an opportunity for Asian digital platforms and MAS to directly notify the operational risks, increase operational cost-efficiency, and fine tune the regulatory framework for the benefit of the industry as a whole. The success of the realization of sandbox experiments, and eventual rollout of a pragmatically tiered, risk-based, and market-efficient RMO regime may well catapult Singapore to the forefront of officially licensed and regulated digital securities within the region.
The Catalyst for the Game Changer
Notwithstanding the restrictions highlighted above, the launch of the MAS sandbox is definitely a breaching necessary step towards positive regulations and creating a healthy and functional ecosystem for digital security offerings to grow. Digital securities already indicate a slew of game-changing benefits which may be immediately palpable for investors, for instance, digital securities can readily open the doors to fractionalized investment with an unprecedented level of dis-intermediation. Subordinated debt digital securities can eliminate traditional dilemma in facing with relation to high-quantum investments by shaving off hefty charges such as brokerage commissions, portfolio management fees and costs of financing. In turn, issuers can benefit from lower costs of project execution, and investors are able to achieve higher returns on their capital. Likewise, in Asian markets which are accustomed to investment through Real Estate based ventures, property-backed digital securities can inject a much-needed boon to the project financing and securitization space.
The explosive and innovative potential of digital securities are apparent, and there is good reason to believe that the true catalyst for realizing the promise of digital security offerings is having pragmatic, future thinking regulators who are willing to acknowledge and act on the emergent demands of an ever-changing landscape. In this regard, Singapore is poised to become a global leader in pro-actively regulating the digital security offering space and taking the world one step closer to the execution of the next “fork” on the ever-expanding network of blockchain history — a centralized ecosystem for digital securities.
Re-forming the Paradigm
Many early community-based blockchain projects propagated a vision of creating jurisdictionally autonomous virtual societies whereby independent stakeholders would contribute to the ecosystem in one way or another, and digital securities would facilitate the sharing of power and trading of resources. This trope has become a persistent thread weaving through many blockchain projects promising to empower the masses and decentralize trade through the use of “utility securities” launched.
However, with the “crypto winter”, digital securities have been rapidly gaining attention as a reassuring counterbalance to the “wild west” world of unregulated digital security offerings. In fact, digital security offerings have been heralded as a possible solution to many of the chronic problems plaguing, such as the unreliability, lack of oversight, and outright fraudulent activity.
Yet, the irony now lies in the suggestion that the continued survival of the alphanumeric digital token industry now seems to hinge on an offering structure which necessitates institutional centralization, jurisdictional fragmentation, and close regulatory supervision. digital security offerings are, by nature, regulated product offerings. They inevitably attract the oversight of comprehensive regulatory frameworks imposed in the realm of traditional securities and capital markets. In doing so, this turns the original “Block-chain Communities” paradigm on its head and seems to drive the yet-unrealized dream firmly into the hands of securities regulators.
While this mightn’t be a bad thing, it begets the question — what place does blockchain-based fundraising occupy in the world of securities and corporate finance? With the threat of draconian regulations posing as a stumbling block to the offering and trading of security tokens, enterprises may strive to find any tangible benefit provided by digital securities beyond those already present under traditional corporate financing structures. Therefore, it is handy address and assess the how the regulatory regime is evolving in light of the emergent digital security market.
About UPRETS:
UPRETS is a platform focused on simplifying investment in real estate.
We are dedicated to providing a convenient, compliant and advanced real estate digital securitization platform for property developers, asset owners and investors globally.
By utilizing UPRETS platform, real estate developers and assets owners can create digital securities for their properties, allowing investors to benefit from the rental dividends and capital appreciation of the properties in major global cities.
Backed by a publicly listed real estate conglomerate (NYSE:XIN) and our award-winning, patented blockchain technology, Xbolt, we bring a network, experience and luxury assets to the platform.
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