The Swiss start-up recently placed its first bond issue entirely digitally. It is a bid to revolutionize capital markets – and cut out investment banks.

On July 15 at 9:30 a.m. CET sharp, Loanboox opened its book for a seven-year green bond for Swiss energy provider Axpo. The issue needed at least 100 million Swiss francs ($107 million) in bids in order to qualify for a trading listing.

And then – for several panicked minutes – nothing happened. As executives at the Zurich-based start-up began pacing, orders started coming into its book-building tool here and there. Suddenly a flood of bidders emerged.

«We hit the 100 million Swiss franc mark within 18 minutes,» Loanboox founder Stefan Muehlemann told finews.com. By 11 a.m., after Loanboox had collected more than 200 million francs in bids from 50 orders, or «tickets,» the book closed.

Dominant Investment Banks

The three-year-old fintech firm (pictured below) finished the day by placing 133 million francs with 35 buyers. Axpo is paying a 1.002 percent coupon on the bond, which it issued in order to finance photovoltaic and wind energy projects.

Loanboox team 500.jpg

The bond issue represents a key milestone in a business that is still largely dominated by investment banks and their connections. «The digitization of the bond market cannot be stopped anymore,» Muehlemann is convinced.

Similar projects include Netherlands-based Newtrex, and R3's Agora, which is trying to build a blockchain-based bond issuance platform. In Switzerland, UBS, Credit Suisse, and Zuercher Kantonalbank have carved up the market amongst themselves.

Fintech: With Vs Against Banks 

Meanwhile, Zurich's Vontobel launched the credit markets platform Cosmofunding two years ago. The investment banks aren't giving up territory without a fight: «There have been several attempts to put obstacles in our way,» Muehlemann said.

The goal is to cooperate with lenders, he noted. «Our doors were and are wide open.» The fintech first developed the functionality to digitally issue bonds two years ago, testing the technology last year. A pilot project – a 150 million franc issue for the city of Bern – fizzled.

Corporate Endorsement

Loanboox sees its maiden issue as proof that finance is at least partly on board with self-directed emissions, where investors set the price themselves. The Axpo issue was placed with asset managers, banks, funds, pension funds, and insurance companies.

It also won an important endorsement from the company's treasurer, Martin Denkinger: «The transaction via Loanboox worked smoothly and significantly increased transparency with regard to investors,» he said. Loanboox said it had already received interest in issuing from smaller cantonal banks as well as larger institutes on future issues following the Axpo placement.

Bye Bye, Bank Fees

The novel move wasn't entirely without banks: Société Générale acted as paying agent and listing partner, while Deutsche Bank took over the market-making and secondary trading. Big-four firm PwC conducted the due diligence, and white-collar law firm Baer & Karrer provided legal advice to Loanboox.

Traditional bond issues are largely a black box: investment banks don't generally let corporate issuers in on volume and price-building processes. The opposite is true with Loanboox's platform: all steps, deadlines and fees are disclosed beforehand and both bidders and issuers can follow the order book in real-time.

Eyeing Expansion

Placement happens by price and on a first-come, first-served basis, and issuers will like that these transactions are wrapped up quickly – within hours or even minutes – and at a fraction of the price that investment banks charge.

Muehlemann, who last month hired Philippe Cayrol as CEO, envisages taking electronic bond issuance global. «We definitely want to offer bond products in our other markets,» he said. The company in April won an expanded German license. It aims to make its services available in countries of the European Economic Area thanks to European Union passporting rules.