AfDB Sets New Benchmarks in US Dollar global and New Zealand Dollar Domestic Bond Markets
The African Development Bank (AfDB) Group on February 15 issued a USD 500 million bond in the global bond market followed by a five-year New Zealand dollar (NZD) 200 million (US$ 160 million) transaction in the domestic bond market in New Zealand ("Kauri" bond) on February 21. While the US dollar transaction achieved the lowest ever pricing for the Bank in the public market, the Kauri transaction was the Bank’s inaugural deal in that market.
"Both transactions are aimed at raising cost-effective resources to fulfill the bank’s development mandate in Africa while diversifying its investor base," the Bank Group Treasurer, Pierre Van Peteghem, said.
The Bank on February 15, 2008, successfully priced a USD 500 million global benchmark issue due February 2011. This is the first global transaction by the Bank Group since October 2006.
In terms of background, the global credit crunch has resulted in significant demand from investors for bonds from the issuers that are not only rated AAA, but are also perceived to be "AAA+" and with a simple-to-understand business model. The launch of this transaction was preceded by careful market monitoring and regular dialogue with selected investment banks.
Proceeds were swapped in line with the Bank’s ALM guidelines to a floating rate at a level which is the best ever achieved by the Bank Group in the public issue market.
The order book of participating investors was of the highest quality with central banks dominating at 94%. Geographical distribution was well-balanced with Asia accounting for 48% of distribution, Europe at 24%, the Americas at 22% and the Middle-East at 6%.
The transaction is the Bank’s sixth global bond since 2002 continuing the Bank’s strategy of maintaining a presence in that market as a rare, but consistent issuer. The tightest pricing outcome is testament to the continued support the Bank Group has in the international capital markets and the rarity value that it brings to investor portfolios.
The Bank Group successfully priced its inaugural 5 year NZ$200 million in the New Zealand domestic market ("Kauri" Bond) on 21 February 2008. These bonds have been approved as eligible securities under the Reserve Bank of New Zealand’s Overnight Reverse Repo-Facility.
The distribution was well balanced with roughly equal amount of paper placed with domestic and international buyers. There was interest from both institutional investors and banks on the domestic side.
Prior to this transaction, the Bank had, in 2006, also issued in the domestic Australian bond market ("Kangaroo market").
Speaking about the Kauri market, Mr. Van Peteghem said "the Kauri market really took off after the changes announced by the Reserve Bank of New Zealand last July to grant repo-eligibility to bonds from highly rated issuers like ourselves and we have since been closely monitoring it. Shortly after we obtained confirmation that our securities would be repo-eligible, favorable market conditions enabled the Bank to launch this transaction. Investor diversification is a key objective of our funding strategy, particularly as the Bank scales up its operations; issuance in domestic markets is an important component of our borrowing programme especially since we can issue in benchmark sizes directly comparable to our peers. This transaction met both these criteria."