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French specialized credit institution Societe Generale SFH has recently announced that the company has issued covered bonds worth EUR 100 million ($112 million) as a security token on the public Ethereum blockchain.
It is the first time that subsidiary of one of Europe’s largest financial services groups (Societe Generale Group) has made such a bold move. Issued tokens are called “obligations de financement de l’habitat” or “OFH” and they are not available to trade in public as Societe Generale owns 100% of its stake. According to the announcement, this move will help the group to explore blockchain and ease the financial transactions across the globe with the lowest transactional cost and real-time fund transfer along with improved transparency and efficiency of bond issuance.
Societe Generale SFH carried out this pilot in collaboration with Societe Generale FORGE. FORGE is one of the 60 startups established under the group’s entrepreneurial program called Internal Startup Call. FORGE is created with the aim to explore blockchain technology and find ways to disrupt the existed digital capital market.
According to the announcement:
“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.”
Covered bonds are the type of debt securities issued by a bank or financial institute and then backed by the specific assets class that makes it quite secure against insolvency of the financial institution. In other words, if the bank were to fail, then anyone who owns the tokens at the time would be able to claim and receive a similar fractional sum as other regular bondholders. The firm further explained that this transaction will make the process of issuing a bond even more efficient and transparent. Talking about OFH tokens ratings, it has been rated AAA by Moody’s and Fitch. Societe Generale was the sole investor in this transaction which means the firm issued the tokens to itself.
Addressing the move by Societe Generale, Moody’s said that utilizing blockchain tech pave a new way for the firm to transact across the globe with enhanced transparency and a reduction in errors which are often experienced during normal transaction due to intermediaries.
It is not the first time that Societe Generale has initiated such a blockchain pilot; in fact, they have been associated with blockchain-based innovation for several years.