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The African Development Bank has mandated its second hybrid bond, having delivered the first public hybrid trade by a supranational agency in January 2024.
The Ivory Coast-based supra has mandated BNP Paribas, Citigroup, Goldman Sachs, HSBC and UBS as joint bookrunners to place the US dollar perpetual non-call August 2035 benchmark. BNP Paribas and Goldman Sachs are also acting as joint structuring advisers. Investor calls were held on Monday.
The hybrid is expected to get be rated AA– by S&P and Aa3 by Moody's, three notches below the Triple A ratings the AfDB usually commands.
Hybrids allow multilateral development banks to expand their lending without having to persuade their member states to stump up more cash to back extra borrowing. In the case of the AfDB's first deal, the supranational expected to be able to lend twice the amount it raised from the US$750m 5.75% perpetual non-call 10.5-year deal.
That bond has traded up and down since it was placed at par, its bid price reaching as low as 92.746 the April it priced, according to LSEG data. On Monday, however, it was trading around the 100.50 mark.
Since the AfDB's first hybrid deal, supranationals such as CAF and West African development bank BOAD have cleared their own publicly marketed hybrids. Agencies have done them, too: Agence France Locale cleared one at the end of last year
But hybrids have remained a corner of the SSA market dominated by fewer mainstream issuers.
The World Bank, one of the market's most established names, does issue them, but in the form of private placements sold to its own member states.
There are limitations to hybrid bonds that might put other issuers off the product. Those include wider pricing compared to conventional bonds (that is thanks to hybrid debt's subordination) and a buyer base leaning towards hedge funds, which are less favoured by issuers because of their association with fast profit-taking and resulting pressure on trading levels.
In the AfDB's first hybrid, hedge funds and specialised funds were allocated more than half the line: 54.8%.
Where the AfDB's new hybrid ends up will be closely watched, said one SSA banker away from the deal. "They'll be trying to expand on that investor base, given it was hedge fund-driven last time ... That's the most interesting part of it."
The AfDB will not be alone in the dollar SSA market on Tuesday.
Finnish agency Municipality Finance mandated Bank of America, Citigroup, Goldman Sachs and RBC to place a three-year dollar benchmark. They set IPTs at 39bp area over SOFR mid-swaps.
