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A&O advises on EIB's first GBP-denominated, dual blockchain digital bond

Global law firm Allen & Overy has advised a bank syndicate comprising BNP Paribas, HSBC and RBC Capital Markets on the European Investment Bank’s (EIB) inaugural issuance of sterling-denominated digital bonds, also marking the first public issuance on HSBC Orion, HSBC’s tokenisation platform. 

This represents EIB’s third digital bond issuance, with A&O having also advised the joint lead managers on the legal aspects of EIB’s first euro blockchain bond in 2021 and their second euro digital bond executed in November 2022.

The sterling bonds, which are governed by Luxembourg law, will be settled on the HSBC Orion platform, which was further developed in conjunction with the bond issue. HSBC acts as Central Account Keeper under the Luxembourg framework for dematerialised securities, with architecture distributed between BNP Paribas, HSBC and RBC Capital Markets, who have further developed their custody offerings in Luxembourg (BNP Paribas) and the UK (HSBC, RBC Capital Markets) to support their clients’ participation in the transaction.

The issuance employs an innovative private/public blockchain combination, with the private blockchain serving as the definitive legal record of bond ownership and a mirror record on the Ethereum mainnet providing increased visibility of holdings on an anonymised basis. This hybrid approach balances the security of a private permissioned blockchain with increased market transparency.

The A&O team was led by capital markets partner Daniel Fletcher in London alongside partner Frank Mausen and Senior Associate Philippe Noeltner in Luxembourg and partner Salvador Ruiz Bachs in Madrid, with London partner Damian Carolan and Luxembourg counsel Baptiste Aubry providing regulatory support.

Daniel Fletcher, lead partner on the transaction commented:

“We are delighted to have partnered with BNP Paribas, HSBC and RBC Capital Markets to support EIB’s continued innovation journey as it ushers in a new phase of development in capital markets. The emergence of digital bonds, and the new market infrastructures in which they are held and settled, gives rise to a number of legal and regulatory challenges, and we are honoured to have advised our clients as they bring these new structures and technologies one step closer to realising their potential for the capital markets.”

Frank Mausen, partner in A&O Luxembourg added:

“Blockchain bonds are a rapidly-developing product that require an experienced and inventive global team of capital markets and regulatory legal experts familiar with distributed ledger technology. Luxembourg is well positioned to capitalise on the continued growth in this space, and the cross-border bench strength and close co-operation across A&O’s international team of specialists is helping to unlock the potential of this technology for financial markets, and enabled us to guide our clients through this complex transaction.”

Philippe Noeltner, lead associate on the deal in A&O Luxembourg added:

“We would like to thank BNP Paribas, HSBC and RBC Capital Markets for choosing us to partner with them as their legal counsel on this innovative and stimulating dual-blockchain bond deal. It has been a pleasure supporting these pioneering teams as they seek to realise a shared vision of secure and efficient digitalised capital markets.”

John O’Neill, Global Head of Digital Asset Strategy, Markets & Securities Services, HBSC said: “We are delighted to have worked with the EIB and A&O to launch the first ever tokenised GBP bond. This inaugural transaction marks the launch of the HSBC Orion platform, which we will use to serve the growing demand from our clients and across the industry for a wider range of safe tokenised assets.”

The EIB was advised by Clifford Chance.

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