African Development Bank issues SOFR-linked transaction in green bond market
The African Development Bank rated has successfully priced a dual-tranche $500 million 3-year and $100 million 2-year SOFR-linked Green bond, becoming the first issuer to bring to the market a SOFR-linked Green Bond transaction.
The fixed rate tranche, oversubscribed within three hours of formal book opening with the support from high quality green investors, was priced at mid-swaps (MS) flat, in line with Initial Price Thoughts (IPTs) and providing a very limited new issue premium. The SOFR-linked tranche, the result of a green reverse enquiry, priced at SOFR + 32 basis points (bps) and was placed almost entirely in the hands of green-dedicated investors.
Building on the Bank’s Ten-Year Strategy for 2013-2022, whose overarching objective is to promote inclusive and sustainable growth by supporting African countries transition to “green growth”, the Bank established a Green Bond Framework in 2013 with the goal of supporting the Bank’s commitments towards climate change mitigation and adaptation. This 7th Green Bond under the Bank’s Green Bond Framework and 3rd in USD benchmark format, highlights the Bank’s consistent effort to fully play its role as one of the main actors of climate finance in relevant sectors such as renewable energy, energy efficiency, clean transportation, biosphere conservation and sustainable water & wastewater management.
The transaction was announced on Monday 26 November 2018 at 3pm London time, with IPTs for the US$ 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.