Financial services provider CGS-CIMB has collaborated with private capital platform iSTOX to issue a short-term debt instrument in the form of digital securities. The S$150 million (US$112 million) multi-tranche commercial paper will be used to fund its operating expenses and near-term obligations.
The first tranche of S$10 million was oversubscribed by accredited individual and corporate investors on the iSTOX platform. Investors were offered a 1% per annum interest rate over three months. The full S$150 million programme is being carried out using digital securities, with no traditional issuance happening alongside the digital channel.
The CGS-CIMB commercial paper is the first in a new product line of digital commercial papers by iSTOX, a multi-asset platform that also facilitates digital issuances for other private market securities, including funds, bonds and equity. Commercial papers are short-term debt issued by companies, with tenures ranging from one to 270 days.
The commercial paper market is worth over US$1 trillion in the United States and over US$950 billion in Europe. Asian companies have historically been more accustomed to raising funds through bank loans, bonds or equity issuance, but commercial papers are gaining momentum.
The CGS-CIMB digital commercial paper is now listed for trading on the iSTOX secondary exchange, giving investors the option to cash out ahead of maturity. The paper matures three months from its issuance, after which investors can decide whether to subscribe for a fresh three-month term. If the next tranche is oversubscribed, subscribers of the current tranche will be guaranteed an allocation if they choose to roll over their investments.
The 364-day commercial paper programme provides for multiple tranches over the next few quarters, up to a maximum amount of S$150 million or higher should the need arise. Taurus Point Capital served as the adviser to CGS-CIMB for the issuance.
Using blockchain and smart contract technology, iSTOX automates manual processes in the issuance, custody and post-sale management of a security, such as the payment of dividends or coupons, the real-time tracking of ownership, and the settling of trades, which happens instantly on the iSTOX platform instead of the two or more working days needed by most exchanges.
For investors, the efficiency gains from tokenization enable fractionalized ownership, lower fees and better liquidity. Accredited investors using the iSTOX platform come from 24 countries, spanning Asia, Europe, the Americas (excluding the United States), Australia and New Zealand. For issuers, iSTOX offers a lower minimum fund-raising threshold, lower fees, as well as faster speed to issuance, which means less uncertainty in a rapidly changing market.
Carol Fong, group chief executive officer of CGS-CIMB, says: “This is the first commercial paper programme we have done in digital securities form, and it allows us to tap an alternative source of funding and a wider spectrum of investors. In working with iSTOX to launch this programme, we were pleasantly surprised that it was completed in half the time a traditional issuance would usually take. Through this collaboration, we are keen to explore first-hand what digital assets and exchanges might hold for us as a broker in the future. Digital issuances are likely to grow and become a strong complement to traditional capital raising channels.”
The issuer is a wholly-owned subsidiary of CGS-CIMB Securities International, which is a 50-50 joint venture between China Galaxy International Financial Holdings Limited, a wholly-owned subsidiary of China Galaxy Securities, and CIMB Group, a wholly-owned subsidiary of CIMB Group Holdings Berhad.
Fintech company iSTOX, founded in 2017, is fully regulated by the Monetary Authority of Singapore. It is backed by Singapore Exchange, Temasek-subsidiary Heliconia Capital and Japan government-backed investors JIC Venture Growth Investments and the Development Bank of Japan.