AfDB issues its inaugural local currency bond in the Nigerian Capital Market
After receiving the Securities and Exchange Commission (“SEC”) of Nigeria’s approval to establish a NGN 160 billion (approximately USD 1 billion) Medium Term Note (MTN) Programme and “No Objection” from the SEC to start the book building process on June 6, 2014, the African Development Bank (“AfDB” or the “Bank”) proceeded to tap the market for its maiden local currency issuance in the Nigerian capital market.
The AfDB launched a 7-year, semi-annual fixed rate coupon bearing bond structured with a 3-year grace period preceding a 4-year amortising profile on principal, introducing a new instrument into the domestic market and adding another issuance into the supranational asset class. The Bank successfully raised NGN 12.95 billion (approximately USD 80 million), issuing at a discount of about 75 bps below the comparable reference point on the government yield curve (Federal Government of Nigeria 27 Jan 2022) to price at 11.25%. The book building commenced on June 20 with a closing date on July 4 and the settlement of the proceeds occurred on July 11. The AfDB’s MTN Programme is the first ever to be established by a supranational issuer in the Nigerian capital market, and the amount raised also represents the largest ever issuance, and also the longest maturity instrument in its asset class to be introduced to the Nigerian market. Acceptance of the issue in the market was also further evidenced and demonstrated by the diverse category of investors to whom the securities were distributed (including pension funds, asset managers, banks and insurance companies).
Pierre Van Peteghem, Treasurer of the African Development Bank Group, outlined the importance and significance of the transaction to the Bank as it marks its inaugural issuance in the Nigerian market, given the size and relative sophistication of this market and Nigeria being the Bank’s largest shareholder. He added that “issuances in the local markets allow the Bank to lend to its borrowers in local currencies thereby eliminating their currency risks; and to participate in the development of African capital markets by providing a new investment product to the local institutional investors.” The Bank’s local currency bonds are structured to match the underlying projects to which the Bank will lend the proceeds. The proceeds of the maiden NGN issuance will be lent to a client who will use the funds to finance local SMEs and some infrastructure projects.
This issuance marks the AfDB’s third domestic bond issue in Africa, outside of South Africa. The Bank previously issued two local currency bonds in Uganda in August 2012 and May 2013. “The Nigerian Naira issuance confirms the AfDB’s commitment to launch more local currency bonds across the continent, with proceeds used to provide local currency loans to the Bank’s clients. This will enable us to better respond to client needs, particularly with respect to mitigating the foreign exchange risks posed by hard currency loans,” said Van Peteghem.
AfDB was advised on this transaction by Stanbic IBTC Capital (a member of the Standard Bank Group) and Rand Merchant Bank Nigeria, a wholly owned subsidiary of the FirstRand Group.
As part of its Local Currency Initiative, the AfDB has issued, since 2005, a series of offshore bonds linked to the Botswana Pula, Ghana Cedi, Kenya Shilling, Tanzania Shilling, Uganda Shilling, Zambian Kwacha and the Nigerian Naira. The Bank currently has authorization to issue domestically in over 10 African markets including, the CFA Franc zone, Zambia, Ghana, Egypt, Tanzania and Kenya.
The African Development Bank is currently celebrating its 50-year anniversary, with over 4,500 projects approved amounting to over USD 118 billion since its creation in 1964, in various sectors including agriculture and rural development, financial intermediation, industry and manufacturing, and education and health.