Digital push outpaces Korea's regulatory framework

Korea's bond market is racking up a series of firsts. This year has seen the country's first digital bond issued by a securities firm, followed by firsts from a private company, a public institution, and, most recently, a bank.

The issuers — Mirae Asset Securities, POSCO International, Korea Housing Finance Corporation and KB Kookmin Bank — come from different sectors. Yet the deals have something in common: All were issued on Hong Kong's blockchain rails.

"Hong Kong has been taking active steps to develop our digital bond ecosystem," a Hong Kong Monetary Authority (HKMA) spokesperson said. "Issuers from various jurisdictions, including Korea, have successfully issued digital bonds in Hong Kong."

Mirae Asset Securities kicked off the run in January with a one-year multicurrency digital bond comprising $41.4 million and $30 million. POSCO International followed in April with a three-year $99.5 million deal, while Korea Housing Finance Corporation issued a two-year $200 million bond in May. KB Kookmin Bank joined in June with a two-year $100 million issuance.

All four digital bonds were arranged by HSBC and used Orion, the bank's tokenization platform linked to Hong Kong's settlement infrastructure.

Digital bonds move processes ranging from issuance and distribution to administration onto blockchain-based infrastructure. Conventional Korean offshore bonds typically take about five business days to settle after pricing, while digital bonds take three. According to the HKMA, digital bonds can also reduce total issuance costs by an average of 1 percentage point.

Digital bonds remain at an early stage globally, with governments and public-sector entities leading trials and pilot programs. Korea stands out, however, for early participation by private companies.

Hwang Suk-jin, a professor at Dongguk University's Graduate School of International Affairs and Information Security, said Korean market participants increasingly see digital assets as a new source of revenue. Korea has long had an active cryptocurrency market, while growth opportunities in traditional finance have become more limited.

"Firms, particularly in the financial sector, are competing to help set market standards and secure a foothold in the platforms and infrastructure that could underpin the market as it develops," Hwang said.

Korea's export-heavy economy also makes the technology particularly relevant. POSCO International, for instance, said it depends heavily on stable foreign currency financing and that its digital bond issuance shortened the funding cycle and widened its reach to global investors.

Despite the growing interest, Korea has yet to establish the regulatory and market infrastructure needed to support digital bond issuance at home. Hong Kong, by contrast, has already put much of that infrastructure to use.

According to the Association for Financial Markets in Europe, global digital bond issuance reached 4.8 billion euros last year, up 48 percent from a year earlier. Asia accounted for 78 percent of the total, driven by a series of large digital bond offerings in Hong Kong, it said.

Its established bond market, mature digital infrastructure and government support have made Hong Kong an easier place to test digital bond issuance, according to Gary Ng, senior economist for Asia-Pacific at Natixis Corporate and Investment Bank. Government grants have lowered the barrier for smaller pilot transactions, he added.

In Korea, amendments paving the way for token securities passed the National Assembly on Jan. 15 and are set to take effect on Feb. 4, 2027.

But analysts expect adoption to be gradual.

"Given the conservative nature of the current regulatory framework and the transitional costs associated with building the infrastructure, the domestic market is unlikely to see explosive growth in the near term," said Yoon So-jung, senior analyst at Korea Investors Service, in a March 10 report.

Explore More

• Q.
• Q.
• Q.