Societe Generale SFH issued covered bonds worth EUR 100 million as security tokens via the Ethereum network. Considering the company’s blockchain track-record and recent regulatory developments in France, we might hear more from French banks soon.
Societe Generale SFH, which is part of the French Societe Generale Group, issued covered bonds worth EUR 100 million in the form of security tokens.It’s the first time that a major French bank has launched a security token offering (STO).
Societe Generale issued the bond to themselves as a pilot project
The bond was designed by the bank’s blockchain subsidiary Societe Generale FORGE, which is one of the startups launched via the bank’s internal Startup Call. PwC advised on the technology, and the French law firm Gide Loyrette Nouel acted as legal advisor.
The security tokens entail a covered bond, a security that is backed by a pool of assets on the issuer’s balance sheet. In case the issuing institution becomes insolvent, the bond remains covered by the underlying assets. The bond has a five-year maturity with a 12-month extension period.
Societe General has issued the bond to themselves, meaning no outside buyers were involved in the transaction. Hence, this was not a public offering, but solely a pilot project.
The bank comments: “This live transaction explores a more efficient process for bond issuances. Many areas of added value are predicted, among which, product scalability and reduced time to market, computer code automation structuring, thus better transparency, faster transferability, and settlement. It proposes a new standard for issuances and secondary market bond trading and reduces cost and the number of intermediaries.”
“Just” a pilot, but it still matters
There are several noteworthy aspects of this project.
Firstly, while it’s the first time that Societe Generale has issued a security token, the bank has already been experimenting with blockchain for a long time.
Societe Generale has been involved in several enterprise blockchain projects, was a founding member of the IBM-powered trade finance platform we.trade and the commodity trading platform Komgo SA.
In early April, private bank Kleinwort Hambros, owned by Societe Generale, had launched an exchange-traded note (ETN) focusing on investments in blockchain companies.
Secondly, both, Moody’s and Fitch, two of the leading rating agencies, have given the token the best possible rating of Aaa/ AAA. Almost every investment company considers ratings as one key criterion when investing in bonds.
Moody’s said it considers the token “credit positive” for the issuer, because of increased transparency and a reduced likelihood of errors “arising from the complexity and the number of intermediaries involved in issuing covered bonds using traditional means.”
Thirdly, the bond was issued via the Ethereum blockchain. For now, Ethereum is still the most popular blockchain for token issuances. However, companies that issue unsophisticated security tokens have recently increasingly opted for Stellar as their blockchain of choice. Reasons cited are usually Stellar’s faster transaction speed, lower transaction costs, and the built-in decentralized exchange.
France has recently introduced blockchain-relevant regulations
We don’t know yet what Societe Generale is up to, but one thing is for sure: The blockchain space in France is currently gaining tremendous momentum.
Earlier this month, the French parliament has introduced a financial sector law that included rules aimed at tempting cryptocurrency issuers and traders to set up in France by giving them some official recognition. It has also passed a bill permitting life insurers to invest in blockchain assets.
French Finance and Economy Minister Bruno Le Maire said, “I will propose to my European partners that we set up a single regulatory framework on crypto-assets inspired by the French experience.”
He added, “Our model is the right one.” – That remains to be seen. But France has certainly gotten our attention over the last weeks.