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German state-owned bank KfW to issue its first blockchain-based bond

Germany’s state-owned bank Kreditanstalt fuer Wiederaufbau (KfW) is preparing to launch a blockchain-based bond later this year to boost the local bond market’s international competitiveness.

The Frankfurt-based lender, which is the world’s largest national development bank, issued its first digital bond in late 2022. The $21.5 million bond was issued on D7, a post-trade platform operated by Deutsche Börse (NASDAQ: DBOEF).

“Digitalisation of the financial industry plays a crucial role in the international competitiveness of the European financial market,” commented Melanie Kehr, a board member at the KfW Group.

This will be the first time KfW utilizes blockchain technology to issue a bond, which German laws label as ‘crypto security.’

Before 2021, all securities in Germany had to be paper-based. In June of that year, the Bundestag amended the Electronic Securities Act (eWpG) to include digital certificates, paving the way for today’s digital bonds.

“With the planned issue of our first crypto security in accordance with the German Electronic Securities Act, we are once again testing an innovation on the financial market and aim to pave the way for future transactions of this type for other market participants,” added Kehr.

Union Investment, the $455 billion investment arm of Germany’s second-largest lender, DZ Bank AG, will serve as the anchor investor. The firm has considerable experience in the sector, launching its blockchain fund earlier this year and investing in other blockchain bonds, including Siemens’ $64.5 million bond.

The fund’s book-runners include Deutsche Bank (NASDAQ: DB), DZ Bank, Bankhaus Metzler, and LBBW.

“We are now taking the next big step with the issuance of a blockchain-based bond for which we want to attract as many investors as possible. The initial goal on the road to the digitalisation of refinancing is to learn and thereby identifying potential for improvement,” commented KfW Treasurer Tim Armbruster.

The bond is expected to launch this summer. While its issuance will be on a blockchain platform, payments will continue to be processed traditionally. KfW has also not disclosed any details about the blockchain network on which it will launch the bond.

An undisclosed source revealed to Bloomberg that the bond’s minimum size will be $108 million, and its maturity date will be December 2025.

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