Capital Markets

Quick Guide to Capital Markets Activities

The African Development Bank is Africa’s premier development financial institution. Set up in 1964, the Bank is owned by 77 member countries – all 53 African countries and 24 non-African countries.  The Bank enjoys the highest possible triple-A credit ratings from the international credit rating agencies. The turmoil in financial markets has further emphasized the robust health of the Bank and its sound risk management policies.

The Bank actively borrows in the capital markets to meet the development needs of African countries. Responsiveness and flexibility are the hallmarks of the Bank’s activities in the capital markets borrower. The bonds are zero percent risk weighted.  Products range from plain vanilla bonds to structured bonds to commercial paper, public issues to private placements, global bonds to African currency bonds to uridashi issues that cater to our Japanese investor base.

As the premier borrower from Africa, the Bank enjoys widespread name recognition in major international and domestic capital markets.  Recent transactions include issuance in the US dollar global bond market, the domestic markets in Australia, Canada, New Zealand, Singapore, Switzerland and South Africa, and African currency linked transactions. The Bank’s Global Debt Issuance Facility provides the platform for documentation across markets and currencies.

Background

The Bank’s borrowing programme is annually approved by the Board of Directors and provides the envelope for the amount that needs to be raised in the capital market to enable implementation of the Bank’s business plan for that year.  The borrowing programme is executed within the framework of the Bank’s asset and liability management guidelines, policies, debt limits, and the borrowing strategy. Its primary objective is to ensure that the Bank has sufficient funds to meet its commitments during the year while achieving the most attractive funding costs, as the latter is important for maintaining the competitiveness of the Bank’s lending activities.  A key determinant of the size is the Bank’s ALM policy that requires the Bank to have adequate liquidity to cover its projected net cash-flow needs for a one-year rolling period even under the unlikely scenario where it is unable to obtain funding from the international capital markets.

As at 31 December 2012, the outstanding borrowing portfolio was UA 13.2 billion in size (provisional size). The total amount raised from capital markets in 2012 was 2.5 billon.

2013 Borrowing Programme

The Bank plans to borrow UA 3.6 billion (about US dollar 5.6 billion) from the capital markets in 2013 to achieve the following objectives:

• Meet operational cash flow needs
• Provide cost-effective funding
• Further diversify investor base
• Access medium to long-term funding, subject to market conditions.

The increase in the borrowing requirements from levels prevailing until 2008 is a reflection of the Bank’s Medium-Term Strategy which envisages a trend of rising approvals, and increasing disbursements.  Our funding strategy in 2013 will continue to focus on maintaining a presence in all segments of the capital markets and regularly engaging the international investor community in a dialogue to remain responsive to their needs.