Spanish bank BBVA has partnered with co-lenders MUFG of Japan and BNP Paribas of France to arrange a syndicated loan using the Hyperledger and Ethereum blockchains.
€150m was lent to Spanish national grid operator Red Eléctrica, as part of a time-saving and immutable transaction that also gave legal advisers Linklaters and Herbert Smith Freehills access to the exchange.
Syndicated loans are complicated agreements in which a number of banks or parties provide funds to a company as part of a single arrangement. They are usually taken by companies seeking to generate extra working capital, fund an expected merger or acquisition, or maintain relationships with multiple financial parties.
BBVA are calling the transaction a “global first”. Other companies have launched platforms capable of enabling syndicated loans using blockchain, but this is the first time a deal has gone through using the process.
BBVA plans more blockchain-enabled syndicated loans
The loan was managed and closed using public and private blockchains. First, details of the agreement were hashed out using a private blockchain on the Hyperledger platform. Second, the transaction was confirmed via a unique document identifier recorded on Ethereum’s ‘Testnet’.
The use of Hyperledger for the pilot allowed for greater flexibility in iterating the details of the agreement, and follows a bilateral transaction made by BBVA earlier this year using the same platform.
Blockchain, the underlying technology behind cryptocurrencies including Bitcoin, has long been touted as a more efficient and secure way to transfer money between parties. BBVA claims the process meant a syndicated loan that would normally take two weeks to organise and confirm took only a day or two.
Aside from significantly expediting the process, the use of Blockchain provided full documentation tracking, complete negotiation transparency and reduced operational risk.
There are “five or six” more pilot loans in the pipeline, Ricardo Laiseca, Head of Global Finance at BBVA confirmed to the FT.
“BBVA is simplifying the processes related to corporate financing and is betting on the use of new technologies, like blockchain, to digitise loan negotiations and contracting. We work with our corporate clients to be able to provide them with the most innovative financing solutions,” he said.
Teresa Quirós, CFO of Red Eléctrica, the organisation that received the loan, said:
This transaction is part of our company’s initiative to push digital transformation and innovation as levers for growth and efficiency, enabling us to address the challenges that the changing energy environment represents to our company.
Internet of Business says
Syndicated loans are a natural partner to distributed ledger technologies (DLTs) as they are suited to facilitating agreements and transactions between a large number of parties.
While the technology proved successful for the pilot, questions remain over whether the energy consumption concerns that come with many DLTs can be allayed.
If the entire $4.6tn-a-year syndicated loan market was run on blockchain, the time and efficiency savings may be far outweighed by the computational cost of authenticating and securing the transactions.
This isn’t an insurmountable problem, however, nor is it the only challenge facing blockchain adoption. The UK government recently called for greater regulation of the cryptocurrency Wild West, and while blockchain’s fate isn’t tied to crypto, its perception is coloured by its successes and failures.
Since this damning report, the government has committed to running a series of Distributed ledger technology (DLT) Field Labs, via Digital Catapult, demonstrating that it hasn’t dismissed the technology entirely.
In September, we reported that 75 of the world’s biggest banks are adopting blockchain. Regardless of the polarised opinions on blockchain, it is here to stay, and it is already having positive impacts in the supply chain and elsewhere.