The Edge

Digitising IPOs, one company at a time

In 2017, there was a boom in initial coin offerings (ICOs), a financial instrument that was seen as an investment option and a fundraising channel for mainly cryptocurrency-related companies. Like a traditional IPO, an ICO is a method for companies to raise funds, but via blockchain-based platforms

March 14, 2022
min read
Digitising IPOs, one company at a time

In 2017, there was a boom in initial coin offerings (ICOs), a financial instrument that was seen as an investment option and a fundraising channel for mainly cryptocurrency-related companies. Like a traditional IPO, an ICO is a method for companies to raise funds, but via blockchain-based platforms.

Instead of buying shares for the potential appreciation value, however, investors buy cryptocurrencies issued by the company, betting that these tokens will gain. Ethereum, for example, issued its ICO in 2014 at 31 US cents apiece. Today, its token Ether is the second largest

cryptocurrency by market capitalisation at US$2,637 ($3,567) apiece as at Feb 23.

When ICOs became popular, market players mulled over the idea of furthering the technology to allow for tokenisation of securities. However, there were limitations around this idea, such as regulatory concerns.

“In the early days of ICOs, the companies issuing the tokens did compare it to IPOs as they wanted to sell the ownership of their network to the world,” says Henry Chong, CEO of Fusang Corp in an interview with The Edge Singapore.

“Unfortunately, there was no such infrastructure for it back then. Like it or not, if they want to allow retail investors to trade shares of their company, they would still need to go public on a stock exchange — that is just how the existing regulatory landscape was set up,” he adds.

Seizing the opportunity, Labuan-based Fusang built a fully-licensed and regulated digital ecosystem that includes Fusang Exchange, which bills itself as Asia’s first regulated stock exchange for security tokens.

Henry explains that the transparency, security and accuracy of the blockchain technology can enhance the efficiency of the IPO process, which is currently very paper-heavy. “There has not been a significant change in how data is recorded in terms of who owns the shares of a specific company over the past 400 years. Blockchain technology allows us to make it better, cheaper and faster, solving the problem of too much paper flying around and too many layers of intermediaries,” he explains.

The of investing

To get its skin in the game and attract other similar listings, Fusang is starting with listing itself via an IPO on the exchange. In late January, the company received the approval from the Labuan Financial Services Authority (Labuan FSA) to offer 2.5 million FSC equity tokens, which

directly represents shares in Fusang. The IPO, which has an offering size of US$10 million, is issued on the Ethereum blockchain. The company is set to be listed on the Fusang Exchange on March 31.

Henry says Fusang’s vision is to make investing as easy as buying products on an e-commerce website. “Investors can go to our website, look at our offerings, view our company information, factsheet, prospectus, as well as our cap table on the blockchain.

“If they are interested, they can sign up, go through a know-your- customer process, fund their accounts either with fiat (currency) or crypto, and then subscribe. The idea is to replicate the same customer experience that companies like Amazon offer,” says Henry.

Acknowledging that there are already a number of companies enabling fractional investing by tokenising securities, Henry notes many of these companies are only doing it for private assets, which may not have a significant investor base. Unlike these platforms, Fusang is scaling it for a large cap table.

To clarify, Henry says companies still need to undergo traditional IPO processes to list on Fusang Exchange. This includes putting together their offering documents as well as work with legal advisors and listing sponsors to ensure that they are compliant with the exchange rules.

For example, with its own IPO, Fusang works with Baxian Private and Investment Bank, a bank within its sister company Portcullis Group which had recently won a full digital bank licence from Labuan FSA.

“To be clear, we are not a broker or an investment bank. It is not our job to knock on doors and help companies fundraise. But I honestly believe that capital market products can and will be sold like any other products in the world,” Henry says.

Under the purview of Malaysia’s Ministry of Finance, Labuan FSA regulates and supervises Labuan International Business and Financial Centre (Labuan IBFC), a wholesale financial intermediation centre. Set

up in 1990, Labuan IBFC is home to more than 850 finance-related licence holders ranging from international banks, re-insurance firms and close to 90 digital licensees operating digital banks, insurtechs, payment gateway providers and crypto-only exchanges.

Enabling the listing of BVI companies

Fusang was set up in 2015 to offer family office investment services. When Henry saw the potential of digital assets, especially how the technology behind it could improve or transform existing investment processes, he turned the company into a developer of digital finance infrastructure. As for Fusang’s traditional asset services and family office investment portfolios, they were transferred to Portcullis.

Portcullis is one of the largest independent trust fund and family office service providers in Asia, with over 35 years of experience operating in Singapore, Hong Kong and Malaysia. The firm currently serves about 20,000 clients. Its founder and president is Henry’s father David Chong, who is also Fusang’s executive chairman. Singapore-based David helped draft the original Labuan Financial Services and Securities Act in 1990, which has since been updated.

On Feb 15, Fusang was admitted to the list of recognised exchanges by the British Virgin Islands Financial Service Commission (BVI FSC). This means that companies listed on Fusang will benefit from a pre- screening process vis-a-vis anti-money laundering and counter terrorism provisions, which will lead to a reduced time to market due to “safe harbour” clauses according to BVI FSC’s recognition.

“I’m grateful that the BVI regulators have been very forward-thinking for this whole process and have been willing to work side by side with us. I think part of the reason why they were open to this is that they have known us for a very long time — even though Fusang is a new entity, Portcullis has operated in the BVI for many years,” says Henry.

He clarifies that Fusang did not ask BVI FSC to make it exempt from any existing regulations. All Fusang had to do was explain that it will be

swapping paper share certificates for digital tokens, all while being in full compliance with existing rules and regulations.

“I know, to some people, the news about us being a BVI-recognised exchange is just a technical regulatory announcement. We think it is interesting because it is a merger of two worlds — traditional and digital finance. We are excited to partner with companies like Portcullis to be able to take those existing large BVI companies that are operating and profiting off of traditional businesses and digitise their shares,” says Henry.

David says BVI is important to both entities as the offshore jurisdiction still ranks as the number one source of foreign direct investment in China. “We at Portcullis act for ultra-high-net-worth families, and they use these companies to invest into China. Some of these companies are huge. We look forward to seeing these companies list directly on the Fusang Exchange,” he adds.

Digitising sukuks

As a first-mover, Henry says it is normal to receive criticisms from others in the industry on what Fusang is doing. However, he points out that the company’s biggest critics are not from the traditional finance world. Instead, they are from the cryptocurrency landscape, who believe that companies will only issue cryptocurrency tokens in the future, not shares.

Despite concurring that the cryptocurrency market will continue to grow, Henry says he does not believe that shares will cease to exist — people are still going to want ownership in entities.

“I know this because big crypto companies and exchanges would still sell shares when it comes to their own fundraising. These paper shares are bought by companies like venture capitalists, who are looking forward to an IPO so that they can exit. CoinBase is a great example of this — they talk about crypto being the future but ended up listing on Nasdaq, which is a very traditional stock exchange,” he adds.

What’s next after Fusang’s IPO? David says that Baxian will also be listed on the exchange, making it the first listed fully digital bank in Malaysia. As a shariah-compliant bank, David says he is looking forward to seeing Fusang digitise sukuks, given Malaysia’s reputation as the world’s biggest issuer of sukuks.

“A lot of sovereign sukuks are only accessible to institutional investors. If we could digitise the whole process, Muslims and non-Muslims around the world could subscribe to it. These are the plans that we currently have in mind,” says David

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