Vonovia digital bond issue highlights new financing possibilities
Vonovia, Germany’s largest listed residential listed company and member of the DAX index of Germany’s largest companies, recently issued its first fully digital registered bond, in the amount of €20m. The bond is for a term of three years.
The bond was issued by means of tokenization of the Stellar blockchain or distributed ledger tech (DLT) platform through a partnership with firstwire, a web-based marketplace for handling debt financing, and Bitbond, Germany’s tokenization and digital asset custody tech solution provider. Vonovia noted that issuing digital bonds was now a key part of its business strategy, which involves digitizing its finance division.
This is not the first time Vonovia has used the platform, having previously placed a promissory note of €50m via the platform in September 2019. The platform aims to directly connect issuers with investors in real time. In this case M.M. Warburg Bank underwrote the €20m bond as sole investor.
Germany’s Federal Cabinet approved a new bill for the introduction of electronic securities in mid-December 2020, as part of its ongoing mission to advance the digitization of Germany as a financial centre, and to meet an important requirement of the government’s blockchain or DLT strategy for promoting more transparency, market integrity and offering better investor protection. The decision removed the previous requirement to issue a paper certificate for the sale of all securities – although in practice a certificate will be sent some days later to a central storage system to comply with previous practice and legislation, at least for a while.
Vonovia’s CFO Helene von Roeder said of the tokenization issue, “Digitalisation provides us with the opportunity to finance ourselves faster, more easily and more cost efficiently. We want to test out the new technology to gain experience with it. It’s easy to imagine that it will play a significant role in the capital market in the future. Issuances are transparent and traceable in real time, which guarantees a professional transaction standard. Additionally, we can use it to approach new investors around the globe.”
Firstwire’s founder and CEO Michael Dreiner said the transaction represents a key milestone because it introduces the use of digital tokens to the institutional capital market and could potentially streamline the traditional bond markets. He added, “In light of the planned legislation of electronic securities, this transaction demonstrates how bond issuances can be conducted in the future. On firstwire, companies can now conclude their transactions digitally and in real time, meaning instant settlement and no multi-day settlement risk anymore.”
REFIRE: The advent of tokenization using blockchain technology is indeed likely to herald in a new era of investing in real estate, with individuals able to put together an individual real estate portfolio for small money, like stock market traders are currently experiencing with minimal or zero brokerage fees. It is likely to give a big boost to the crowdfunding sector. Although liquidity in the market may be limited right now, that could change rapidly once regional stock markets and the Deutsche Börse step in to ensure matching.
And of course, current tokens are issued as shares in securities or funds or other derivatives, and not in the underlying assets themselves. We’re still many years away from the day where Germany’s legendary Grundbucheintrag, or notarized entry in the Land Register – the bedrock of the German real estate industry – is fully digitalized on the blockchain and payable in cryptocurrency. But developments here and elsewhere, such as the ISPX International Property Securities Exchange in the UK, clearly point to the direction of travel.