African Development Bank issues first ever SOFR-linked transaction in green bond market

On Tuesday 27 November 2018, the African Development Bank rated Aaa/AAA/AAA by Moody’s/S&P/Fitch (all stable) successfully priced a dual-tranche US$ 500 million 3-year and US$ 100 million 2-year SOFR-linked Green bond, becoming the first issuer to bring to the market a SOFR-linked Green Bond transaction.

The fixed rate tranche, oversubscribed within three hours of formal book opening with the support from high quality green investors, was priced at mid-swaps (MS) flat, in line with Initial Price Thoughts (IPTs) and providing a very limited new issue premium. The SOFR-linked tranche, the result of a green reverse enquiry, priced at SOFR + 32 basis points (bps) and was placed almost entirely in the hands of green-dedicated investors.

Building on the Bank’s Ten-Year Strategy for 2013-2022, whose overarching objective is to promote inclusive and sustainable growth by supporting African countries transition to “green growth”, the Bank established a Green Bond Framework in 2013 with the goal of supporting the Bank’s commitments towards climate change mitigation and adaptation. This 7^th Green Bond under the Bank’s Green Bond Framework and 3^rd in USD benchmark format, highlights the Bank’s consistent effort to fully play its role as one of the main actors of climate finance in relevant sectors such as renewable energy, energy efficiency, clean transportation, biosphere conservation and sustainable water & wastewater management.

The transaction was announced on Monday 26 November 2018 at 3pm London time, with IPTs for the US$ 500 million 3-year tranche released at MS flat area. Strong interest from real money accounts and central banks started flowing into the books from the outset, with indications of interest exceeding US$ 400 million (excluding Joint-Lead Managers (JLM) interest) the next morning. Books officially opened at 08:25am London time on Tuesday 27 November for both tranches, with price guidance of MS flat bps area for the fixed rate tranche and SOFR + 32 bps area for the floating rate tranche. Books closed at 1:30pm, London time, in excess of US$ 590 million (excluding JLM interest) for the fixed rate tranche. Soon after the transaction was launched with US$ 500 million size and the spread set in line with IPTs at MS flat. The SOFR-linked tranche was set with US$ 100 million size at SOFR + 32 bps.

There was very strong support for the transaction from green dedicated portfolios but also from investors who integrate Environmental, Social and Governance (ESG) considerations in their investment strategies. The participation of such investors reflects The African Development Bank’s solid green framework and the high quality of its impact reporting.

The final order book included more than 40 investors across both tranches. In the fixed rate tranche, central banks and official institutions took the lion’s share of the transaction with 61%, while asset managers took 24%, pension and insurance companies 12% and bank treasuries 3%. By geography, Europe led with 39%, the Americas followed with 28%, Asia with 26% and Africa and the Middle-East with 7%. In the SOFR-linked tranche, central banks and official institutions were 65%, pension and insurance companies 23% and asset managers 12%, while by geography, 91% went to Americas and 9% to Europe.

Investors’ Quotes

“The City of Chicago Treasurer’s office is proud to be the lead-order on this cutting edge transaction with the African Development Bank. This deal is the first ever SOFR-linked Green Bond transaction and we believe it represents the future of responsible investing. By investing in this issue, the City brings together two of the most innovative trends in Fixed Income: the transition from LIBOR to SOFR as the next global benchmark, and the continued focus on channeling global capital to ESG and Green projects all while working with an issuer of the highest credit quality and scope of mission. It is a privilege to be a thought-leader in this space, to help draw attention to the trends which we believe will shape investing for the future, and to do so with the best interests and proper stewardship of the City’s assets in focus.” Jabari Porter, Chief Investment Officer, Office of the City Treasurer, City of Chicago

“AFDB’s green bonds enable our clients to invest in high-quality renewable energy projects like solar and wind farms in Africa through a familiar SSA fixed income offering.  The global climate benefit of this type of infrastructure build is significant and drives at the spirit of what the green bond market was built to accomplish.” Ashley Schulten, Head of Responsible Investing, Global Fixed Income at Blackrock

“IFAD is pleased to participate in this issue, which contributes to exploring an alternative for setting a reference interest rate.” Domenico Nardelli, Treasurer of IFAD

Issuer’s Quote

“We are delighted with the success of our 7^th Green Bond transaction, highlighting our continued commitment to addressing the devastating effects of climate change in Africa. A partnership with a dedicated Socially Responsible Investor enabled us to launch the first ever SOFR-linked transaction in the green bond market. We will continue to try to break new ground to fulfil our mandate in Africa.” Hassatou N’Sele, Treasurer of the African Development Bank Group

Lead Managers’ Quotes

“BAML welcomes AfDB’s return to the Green Bond market; repeat SSA issuers are the cornerstone of the Green Bond space. After their debut Social Bonds, AfDB breaks new ground with the first SOFR-linked Green Bond.” Suzanne Buchta, Global Head of ESG Capital Markets, BofA Merrill Lynch

“Sustainability is at the core of AfDB’s return to the Green Bond market with this milestone USD benchmark transaction. CACIB is very pleased to accompany AfDB on this journey once again and welcomes the publication at the same time of AfDB Green Bond newsletter, illustrating the tremendous work achieved since 2013.” Pascale Forde-Maurice, Sustainable Banking, Crédit Agricole CIB

“AfDB further establishes its presence in the Green bond market with a USD 600mm Fixed/FRN dual-tranche Green Global.  The issuer is the first to offer a SOFR-linked Green bond, and the second SSA name to come with a public SOFR FRN transaction.  Meanwhile, the 3-year tranche achieves AfDB’s tightest spread to Treasuries since 2013 in this tenor, driven by high-quality and green-focused investors.” Matthieu Batard, Executive Director, J.P. Morgan SSA Syndicate

“Wells Fargo Securities is delighted to work with supranational, African Development Bank, in this dual tranche Green transaction, including the first ever SOFR-linked Green Bond transaction. This issue successfully brings together two parallel markets, the nascent SOFR-linked FRN space, and the more established Green/ESG one. WFS is fully committed to further develop both of these markets for the benefit of the financial sector and, more importantly, for the betterment of society as a whole.” Carlos Perezgrovas, Head of SSA Origination, Wells Fargo Securities, LLC

“It is great to see African Development Bank’s ongoing commitment to the Green bond market in spite of the turbulent markets we have seen in recent weeks. These deals don’t happen by accident and require planning and a serious commitment to investor outreach. The response from investors on today’s deal fully vindicates AFDB’s efforts.” Paul Eustace, Head of Syndicate, TD Securities

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