AfDB issues first-of-a-kind hybrid notes for $750m

BREAKING NEWSJanuary 31, 2024 at 3:19 PM UTC

TLDR

African Development Bank (AfDB) issues $750 million perpetual hybrid note, a first for multilateral development banks.
The note has a 5.75% coupon rate, surpassing the earlier guidance of 6.375%.
Investors can redeem the note after 10.5 years or at five-year intervals thereafter, reflecting AfDB's diversification strategy to support developing economies.

The African Development Bank (AfDB) has issued its highly anticipated perpetual hybrid capital note, marking a significant financial milestone as the first of its kind for multilateral development banks.

The issued $750 million perpetual hybrid note features a 5.75% coupon rate, surpassing the earlier guidance of 6.375%. Functioning as a deeply subordinated, debt-like equity instrument, it holds a credit rating lower than the AfDB's AAA-rated bonds.

Investors have the option to redeem the note after 10.5 years or at five-year intervals thereafter. This pioneering move reflects a strategic effort by the AfDB to diversify its financial instruments and strengthen its capacity to support developing economies.

Key Takeaways

AfDB’s landmark move comes as these institutions face growing pressure to identify innovative ways to enhance their lending capacities. Responding to calls from the G20 group of major economies, multilateral lenders are encouraged to explore hybrid financing structures as a means to optimize balance sheets and increase funding for addressing crises, including those related to climate change. This is particularly vital for Africa, a continent that accounts for a fraction of global carbon emissions but suffers the most devastating effects from climate change. Overall climate financing would need to grow from current levels of around $30bn a year to nearly $300bn to meet the mitigation and adaptation needs of the continent.

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