The African Development Bank (AfDB) has sold its long-awaited hybrid capital note, the first financing of its kind for multilateral development banks, which are under increasing pressure to find ways to boost their lending.
The G20 group of major economies has urged multilateral lenders to explore hybrid financing structures, to try to maximise balance sheets and increase funding to help developing economies with crises including climate change.
The $750 million perpetual hybrid note has a 5.75% coupon, tighter than the 6.375% guidance. The deeply subordinated, debt-like equity instrument has a lower credit rating than the lender's AAA-rated bonds and can be redeemed by investors after 10.5 years or every five years thereafter.
"This is not a one-off transaction, it is definitely one of many more transactions to come," said Hassatou N'Sele, VP Finance and Chief Financial Officer for the AfDB Group, declining to give more details on future issuance plans.
"We are establishing hybrid capital issued by AAA rated multilateral development banks as a new asset class ... Other MDBs have indicated an interest in exploring hybrid capital."
After an investor roadshow in September, the AfDB delayed the launch amid rising borrowing costs and choppy markets.
BNP Paribas and Goldman Sachs structured and coordinated the issuance, while Barclays and BofA Securities joined as bookrunners. S&P Global rates the notes an AA-minus.
Damian Saunders, FIG Syndicate at BNP Paribas, said the transaction attracted a broad range of investors from private banks to asset managers and specialist credit funds.
"It was clearly a big learning curve for all parties involved and that includes the investor side as well – investors had to go away and decide how to price this risk," Saunders said.
The AfDB's acting treasurer told Reuters in November the bank has the capacity to issue $4 billion-$5 billion of hybrid capital bonds, but would be "progressive" with one or two transactions per year.
The terms of the hybrid note allow for a permanent principal writedown if the AfDB faces stress and needs shareholders to increase its capital, while coupon payments also can be skipped.
