AfDB’s sustainable hybrid bond oversubscribed as demand tops $6bn

Business a.m

The African Development Bank (AfDB) has successfully launched its first-ever sustainable financing instrument, a $750 million perpetual subordinated hybrid capital note. 

The deal was officially completed on January 30th, and the notes are expected to mature in August 2034, with a call option for the AfDB after 10.5 years. 

With robust investor demand for the notes, the AfDB achieved a top-quality order book, with over 275 investors participating and over 190 allocated. Hedge funds and specialised funds were the largest class of investors, taking up 54.8 per cent of the allocation, followed by asset managers at 27.8 per cent. Central banks and official institutions took 6.7 per cent of the allocation, while pension funds and insurance companies took 6.6 per cent.

The investor breakdown by region showed a notable concentration in Europe and the Middle East, accounting for a combined total of 77.6 per cent of the demand for the notes. Within Europe, the United Kingdom accounted for a strong majority of the demand at 51.1 per cent, followed by continental Europe at 26.5 per cent. This was closely followed by the Middle East and Africa at 26.5 per cent. Meanwhile,  Asia  accounted for 14 per cent, while demand from America  stood at 8.4 per cent.

The development has been considered a groundbreaking transaction for the AfDB, as it was the first time a multilateral development bank issued a bond of this kind. The issuance positions the AfDB as a pioneer in implementing the recommendations of the G20 Capital Adequacy Framework (CAF), which aims to optimise the balance sheets of MDBs to boost their lending capacity. The hybrid capital notes issued by the AfDB will help the bank meet the CAF’s requirements and enable it to provide more funding for sustainable development projects in Africa and other parts of the world.

For the issuance of the new perpetual non-call 10.5-year hybrid notes, the AfDB worked with a syndicate of leading banks. BNP Paribas and Goldman Sachs International were appointed as joint structuring agents, while Barclays, BNP Paris, BofA Securities, and Goldman Sachs International were appointed as joint book runners. The banks played a critical role in designing and marketing the notes to global investors, and their expertise was instrumental in the success of the transaction. The new hybrid notes were issued as a part of the bank’s sustainable finance strategy, which focuses on addressing the United Nations Sustainable Development Goals.

The issuance of the new hybrid notes was a significant milestone for the AfDB, marking a decade of ESG-focused bond issuances by the pan-African lender. The notes were issued under the bank’s 2023 Sustainable Bond Framework and will be used to finance new green and social bonds that further the bank’s commitment to sustainable development.

According to the AfDB, the proceeds from the hybrid capital notes will serve as an additional source of capital, allowing it to lend more funds for environmental and/or social projects. Since the bank’s first green bond issuance in 2013, it has been a pioneer in the sustainable finance space, with its innovative green, social, and sustainability bonds. In 2017, the bank became the first multilateral development bank to issue a social bond, which has been followed by multiple social bond issuances since then.