African Development Bank Issues USD 2 billion 3-year Social Bond

The African Development Bank (AfDB), renowned for its financial stability with Aaa/AAA/AAA/AAA ratings from Moody’s, S&P, Fitch, and Japan Credit Rating respectively, has unveiled a groundbreaking initiative. They have successfully launched a USD 2 billion 3-year Social Global Benchmark, due on 25 February 2027. This marks a significant milestone as it represents the AfDB’s inaugural social bond under its newly established Sustainable Bond Framework, introduced in September 2023. This framework seamlessly consolidates and enhances the AfDB’s existing Green and Social Bond programs, thereby facilitating the issuance of green bonds, social bonds, and sustainability bonds.

The AfDB’s debut 3-year Social Benchmark in 2024 aligns strategically with the reopening of primary markets in January. This issuance stands out prominently amidst the dynamic USD SSA markets, witnessing the introduction of eight benchmarks totalling an impressive USD 17.25 billion in just two days.

In line with its funding strategy, the AfDB continues to issue large liquid benchmark transactions, which further solidify its presence in the market. This issuance adds another on-the-run reference in the 3-year maturity category. Notably, the AfDB has achieved the remarkable feat of securing the tightest pricing among Multilateral Development Banks (MDBs) when compared to swaps and US Treasuries.

The issuance garnered robust support from the global investor community, with an order book exceeding USD 3.5 billion. It attracted high-quality investors, including central banks, official institutions, and bank treasuries, collectively constituting a substantial 78% of the total book. Distribution was well-diversified across various geographies and investor profiles, with a remarkable count of 76 orders in the book. Notably, the social label attached to the issuance drew substantial interest from ESG (Environmental, Social, and Governance) investors, representing 38% of the participants in the book.

The AfDB’s mandate for this 3-year USD Global Benchmark was announced on January 17, 2024, at 15:00 London time, capitalising on favourable market conditions and a robust primary market backdrop. Initial Pricing Thoughts (IPTs) were released at SOFR mid-swaps plus 33 basis points (bps). The deal garnered significant investor interest during the overnight session, with Indications of Interest (IoIs) reaching USD 2.1 billion by the time books officially opened on January 18, 2024, at 08:00 London time.

The order book continued to grow throughout the European morning, with investor demand reaching USD 3.6 billion by 10:50 London time. This allowed for a tightening of the spread by 2 bps, ultimately setting it at SOFR mid-swaps plus 31 bps. Books closed at 13:00 London time, with the high-quality order book exceeding USD 3.5 billion. This enabled the launch of the transaction with a substantial size of USD 2 billion. The trade was officially priced at 15:18 London time, with a reoffer yield of 4.221%, equivalent to a spread of 10.3 bps vs. UST 4% Jan-27. This represents the tightest spread when compared to UST in the USD SSA primary market for the year thus far.

In conclusion, the final order book closed impressively in excess of USD 3.5 billion, boasting participation from over 70 orders. This achievement marks a significant step in the AfDB’s commitment to sustainable finance and underscores its strong position in the global financial landscape.