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[Nikkei QUICK News] On April 15, Japan Exchange Group (JPX, 8697) announced that it will an issue green bond (environmental bond) in the form of security token bond (digital bond). Previously, digital bonds have only been issued in Japan for individual investors etc., and JPX plans to make this its first issue for institutional investors. In addition, it will be the first environmental bond as a digital bond. The market is highly interested in whether this will be a catalyst for digital bonds, which have been difficult to scale up in the past.

According to JPX's plan, the maturity of the bonds is one year and the interest rate is about 0.05%. The issue amount will be about JPY300 mn (maximum JPY800 mn), and the launch date will be June 1. Nomura Securities will serve as the lead manager, and the funds raised will be used for capital investment in renewable energy power generation facilities, including solar and biomass power generation facilities.

Managed without the use of JASDEC

Unlike regular corporate bonds, the Japan Securities Depository Center (JASDEC) is not used to manage corporate bonds, and blockchain technology is used to electronically complete all operations from issuance to management and redemption. BOOSTRY's blockchain infrastructure, "ibet for Fin" will be used. Blockchain technology will make it easier to confirm that the funds are being invested according to the original plan for the environmental bonds, which has been considered one of the challenges. Specifically, data on emission reductions will be easier to track. The amount of electricity generated is measured via a smart meter installed at the power generating facility and written on a security token. Investors can check the amount of electricity generated at any time on the system by entering their ID and password. A representative of the lead managing securities firm hopes that the new technology will make it easier for investors to check their data, and that similar systems will spread in the future.

There are five major digital bonds issued in Japan to date. These digital bonds were issued for investments in real estate as well as corporate bonds, and were mainly intended for individual investors. The digital bonds that Marui Group (8252) is preparing to issue are also for individuals. The JPX's decision to issue digital bonds to institutional investors was aimed at expanding its business in digital bonds to institutional investors, who are the main players in the ESG (Environmental, Social and Governance) bonds market.

For this reason, the issue amount was kept to a small start. The power generation facility for which the funds are being used this time is intended only to generate electricity for the company's use, and the scale of the business is small, but a JPX representative said, "We want to create a small business and grow it into a large one." The face value of the bonds is JPY100 mn, and the actual investors are limited to a few people.

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Institutional Investors Remain Quiet for the Time Being

In response to the JPX's trial, a fund manager said, "It is difficult to choose the bond as an investment target if its liquidity is low and the amount of money which can be used for its purchase is only about JPY100 mn." Because of the time and effort required for analysis and other factors when selecting investments, the fund has a minimum requirement of a potential for future investments in the billions of yen range.

JPX has only JPY20 bn in total remaining in straight bonds, and it has not yet been determined whether the company will continue to issue digital bonds on a regular basis. The fund manager mentioned above is taking a wait-and-see attitude for the time being, saying, "I will consider investing in digital bonds when they become so common that the same type of bonds are issued consecutively on a certain scale."

?Aware of the toughness in terms of scale and liquidity, the JPX embarked on a challenge. Will it become easier for the outside parties to know whether environmental bonds are really being used in accordance with the stated goals, and will this be evaluated and digital environmental bonds take root among issuers and investors? The trial has just begun.

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