The African Development Bank is planning to issue the first perpetual hybrid notes out of a multilateral development bank, a new tool that could expand funding for developing economies.
(Bloomberg) — The African Development Bank is planning to issue the first perpetual hybrid notes out of a multilateral development bank, a new tool that could expand funding for developing economies.
The dollar-denominated note will feature a permanent principal writedown clause, which means that the notes could be wiped out if shareholders have to bolster the lender’s capital during times of distress, according to an investor presentation seen by Bloomberg News. Coupons will also be skipped if the agency’s capital is severely depleted.
The hybrid notes, which will labeled as sustainable, will allocate cash to green and social projects, according to the presentation. The prospective issue follows a Group of 20 report published in July, with examined measures that could boost multilateral development banks’ (MDB) lending capacity by about $200 billion over the next decade.
“Most of the MDBs are looking at hybrid and other forms of innovative finance,” said Eric Pelofsky, vice president at the president’s office of The Rockefeller Foundation, which supported the G20 review the MDB’s Capital Adequacy Framework. “We need more and better quality – lower cost and longer tenure – capital from each of the banks if we want to meet the needs that are out there.”
BNP Paribas SA and Goldman Sachs Group Inc. are structuring agents for the issue. The two banks, alongside Bank of America Corp. and Barclays Plc, are arranging investor meetings starting Friday, Sept. 15, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.
Representatives at the African Development Bank, Goldman Sachs, BNP Paribas, BofA and Barclays didn’t provide comment. The notes are expected to be rated at AA-, by S&P Global Ratings, or three steps lower than AfDB’s senior debt score, according to the presentation.
(Adds details of the transaction and quote from Rockefeller Foundation official.)
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