The regional governors of the African Development Bank (www.afdb.org) have unanimously backed a bank proposal to increase the general capital. According to a communiqué issued at the end of the 12 February meeting: a “200% increase would allow the Bank to serve client countries and entities within them.”
The bank’s sixth capital increase had initially been scheduled for 2012, but had been brought forward after the bank stepped up its lending programmes to counter the effects of the financial crisis. This included establishing flexible and fast-disbursing facilities such as the US$1.5 billion Emergency Liquidity Facility and US$1 bln Trade Finance Lines of Credit.
The bank stresses that its capital situation remains strong but the capital raising, in the shape of paid-in capital ratio of 6% and payments spread out over an 8-year period starting in 2011, would maintain the Bank’s prudential ratios within their limits until 2018, provided “the impact of the financial crisis on the Bank’s operations subsides at the end of 2010”.
On 2 February the bank announced that it had successfully launched and priced a three-year US$ 1 bln global bond issue, its first for 2010. The bank has a borrowing programme of about US$ 5.5 bln for this year. The proceeds will help finance the growing portfolio of AfDB projects in Africa.
In line with the Bank’s top-notch AAA credit rating, the issue was priced at “mid-swaps less 2 bps”*. The issue was oversubscribed with the order book reaching about US$ 1.4 bln and the bank’s Treasurer, Pierre Van Peteghem says the oversubscription demonstrates the strong confidence the markets have in the African Development Bank and its development mandate
He ssays: “We have started our funding programme very positively this year and, since the issue was a resounding success, we are very pleased. The tight pricing achieved by AfDB, with a broad distribution both by geography and investor type, clearly demonstrates the high value that international investors place on our credit”.
All main investor types were represented. Central banks and other official institutions accounted for 68% of the issue, 17% went to fund managers, and 15% to banks. Some 39% went to the Americas, 48% to Asia, and 13% to Europe, Middle East and Africa region.
Hassatou N’Sele, Manager of Capital Markets and Financial operations indicated that “The success of this deal is a reflection of the well executed benchmarks we have brought into the market, and the intensive investor works we have embarked upon. We have seen very strong demand from central banks all over the word and attracted investors that had never participated in an AfDB benchmark before.” This bank held a first Dealer Event in London on 20 January and attended by approximately 50 representatives from more than 20 banks. Its purpose was to raise the Bank’s profile on the markets, and to inform the investment banking community of its funding strategy and strengthen relationship with their capital market teams.
The latest issue was lead managed by Daiwa Capital Markets, Deutsche Bank, Goldman Sachs International and UBS Investment Bank. The co-lead managers were BNP Paribas, Credit Suisse, HSBC, Mizuho and Standard Chartered, reflected the Bank’s increased borrowing activities on the capital markets.
The bank did four similar transactions in 2009.
The governors’ backing for a general capital increase was also based on ensuring that resources were available to deal with global warming, which has the potential to significantly affect Africa’s development prospects. African leaders had proposed that 50%of world funds for global warming should go to Africa, to be administered by AfDB through a board of trustees.
* To be honest, I have no idea what this means. If any readers have enlightening opinions, you are welcome to add it. The best that I can find on the Internet is that it relates to currency swap rates, but what that would mean in the AfDB context I am not sure.