AfDB’s hybrid capital sits atop global MDBs after S&P ‘AA’ rating

By Onome Amuge.

The African Development Bank Group (AfDB), has been assigned an AA-rating by renowned credit rating agency,S&P Global Ratings, the highest rated hybrid capital for a multilateral development bank (MDB), following its inaugural hybrid capital issuance which positions the group as a pioneer in innovative sustainable financing.

Hybrid capital, according to industry experts, is a combination of debt and equity, that complements rather than replaces these two sources of finance. It is recognised as an established financing instrument that is widely used by corporates, financial institutions, insurance companies, and agencies, but has not yet been used by multilateral development banks.

S&P, in a statement said, “As far as we are aware, the African Development Bank would be the first MLI (Multilateral Lending Institution) to incorporate hybrid capital into its capital structure.”

It noted furth that the bank’s hybrid capital initiative has garnered global attention, including from the G20 Capital Adequacy Experts group, which has recommended that other multilateral development banks also explore hybrid capital instruments.

Business A.M gathered that the global recognition for the debut transaction is the highest rating for hybrid capital. In addition,the proposed issuance would be the first ever by a multilateral development bank.

The AfDB, in a statement, explained that the hybrid capital, when operational,will have a multiplier effect on the bank’s financing, and allow for the issuance of additional green, social and sustainable bonds to finance projects targeting some of the continent’s most critical development challenges including food security, access to water and health services, and climate change.

Commenting on the innovative financial instrument, Akinwumi Adesina, the President of the African Development Bank Group, observed that global and regional multilateral development banks are being asked to change their business models to leverage more financing at scale, to tackle climate change and accelerate development.

Adesina, who described the pan-African lender as  a pioneer in financial innovations, explained that the bank’s decision to issue hybrid capital will allow it to leverage more financing from capital markets to further accelerate Africa’s growth and development.

The AfDB chief expressed delight at the historic rating achieved by the bank, saying, “We will continue to respond and lead with financial innovations, in response to the need to leverage more financing, as per the global calls for reforms of the global financial architecture.”

Hassatou N’Sele, the AfDB’s vice president for finance and chief financial officer, remarked that the  hybrid capital, issued by AAA-rated multilateral development banks,is another way to bolster a Multilateral Development Bank (MDB) capital base and optimise its balance sheet.