The World Bank prides itself on bringing best practice to capital markets across the globe, but when it became the first issuer to sell a bond denominated in special drawing rights (SDR) in the onshore Chinese renminbi market it observed an approach to best practice in bond issuance that “others can emulate”, Arunma Oteh, treasurer of the World Bank, told Emerging Markets.
“One example is that in Western markets, bookbuilding is essentially done by the bookrunners,” she said. “But China has the Beijing Financial Assets Exchange, which does the bookbuilding. This is an independent entity. I was fascinated when I visited it because the bookbuilding happens in a room that you can see what is going on and you can see as the orders come in. It’s a very transparent process.
“Such approaches can further boost the confidence of investors. For me, it’s an example of the role that we play in bringing best practice to a market, but also the role we play in showing that a market is potentially one that people should look at.”
World Bank sold the SDR500m (c. $700m equivalent) 0.49% three year bond — which makes payments in renminbi — in late August, just one month before the IMF added renminbi to the SDR basket on October 1.
So far, no other borrowers have followed, but Oteh is hopeful that the World Bank’s initiative will be picked up by others in the market.
“Since our SDR500m issuance, we’ve had issuers that are looking at the same market ask us about how did we do it,” she said. “It’s also of course an opportunity for the Chinese financial sector to diversify its options in terms of what it invests in.”
BUILDING BLOCKS
But further ahead, the opportunities offered by blockchain — effectively a distributed database of a series of financial transactions — could be adopted in several areas of finance, helping to restore trust in a financial system still viewed with suspicion by many since the crisis of 2008, according to Oteh.
“I’m fascinated by the developments in fintech,” she said. “I’ve been very anxious that the global financial crisis broke trust in ways that have been difficult for the financial sector to rebuild.
“My perception is that blockchain could help rebuild that trust. It’s a real area of opportunity. It has potential for managing identity, having an audit trail — it will improve efficiency and broaden opportunities.”
Oteh’s view appears to be supported by the government of Dubai, which this week announced plans to become paperless by 2020 — by moving all transactions to a blockchain database.
Aside from the financial benefits, the Dubai government is also hopeful that the cutback in paper usage will have environmental benefits.
Other initiatives to harness the possibilities of blockchain are already underway in a variety of other areas.
In late September, Credit Suisse and technology companies Ipreo, Symbiont and R3 announced they had finished the first stage of a project to showcase how blockchain can improve settlement times for syndicated loans.