A $750 million hybrid capital note is being issued by the African Development Bank, which is a first in the world of multilateral banking.
A first for multilateral development banks, the $750 million permanent hybrid capital note was issued by the African Development Bank (AfDB). The G20 group is urging such companies to explore alternative financing models, and this financial strategy is a first for banks that are experiencing rising demands to expand their lending capacities. The goal is to strengthen financial positions and increase resources going toward helping emerging countries deal with problems, especially those caused by climate change.
The hybrid capital note’s coupon of 5.75% is higher than the expected 6.375%. While the African Development Bank’s AAA-rated bonds have a higher credit rating, investors have greater flexibility with this subordinated, debt-like equity product.
“This is not a one-off transaction; it is one of many more transactions to come,” said Hassatou N’Sele, VP of Finance and Chief Financial Officer for the African Development Bank Group, referring to a potential change in the bank’s financing strategy. No information on planned future issuance has been made public, however N’Sele did highlight the creation of hybrid capital as a new asset class by multilateral development banks with AAA ratings. This forward-thinking method of funding has also piqued the curiosity of other such organizations.
The African Development Bank had to temporarily postpone the introduction of the note after an investor roadshow in September because of rising borrowing rates and market instability. A varied group of investors were ultimately drawn to the offering, which was organized and structured by BNP Paribas and Goldman Sachs. Barclays and BofA Securities also participated as book-runners. The fact that specialized credit funds, private banks, and asset managers all took part demonstrates how widespread interest in the innovative financial product was.
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