Sustainable Bonds With African Impact

    Stockholm (NordSIP) – The African Development Bank (AfDB) announced it had issued dual-tranche sustainable bonds worth approximately € 170 million, mainly to Scandinavian investors, on Thursday, April 4th. The bond is divided into two tranches, including a NOK 500 million 3-year fixed Social Bond and a SEK 1.25 billion 5-year fixed Green Bond. The lead manager on this transaction was SEB.

    “There was very strong support for the dual transaction from Socially Responsible Investors (SRI) dedicated portfolios but also from investors who integrate environmental, social and governance (ESG) considerations in their investment strategies. The success of the transaction is reflective of the Bank’s solid green and social frameworks and the high quality of its impact reporting,” stated the accompanying press release. “Some of the SRI and ESG oriented investors who participated in the transaction were AMF, AP3, Dina Försäkringar, Handelsbanken Asset Management, LF Jönköping, MP Pensjon, Nordea Investment Management, SEB Investment Management, SPP Storebrand and The Church of Sweden.”

    The three-year tranche is the very first Social Bond issued in the Norwegian market, the first-ever NOK transaction issued by the AfDB and the third Social Bond it has issued under its Social Bond framework. The bond pays a 1.5% coupon and was priced at a 99.66 discount to yield 1.617%. Demand was as expected, and final pricing conditions were consistent with the initial guidance of Mid swaps -17 basis points (bps). Domestic Norwegian investors purchased 87% of the social bonds, leaving Germany, the UK and Switzerland to split the rest. Fund managers bought 47% of the notes, followed by banks (20%), pension funds (10%) and insurers (6%), leaving the remaining 17% to be split among other undisclosed investors.

    “Nordea Investment Management is proud to invest in the first ever Social Bond in the Norwegian market, and by doing so, we can support specific social projects that address the African Development Bank’s strategic goal of achieving inclusive growth for Africa. We hope the success of this transaction will encourage other issuers to tap the Norwegian market with Social Bonds in the future,” said Torgeir Stensaker, Head of Fixed Income Norway, at Nordea Investment Management.

    The SEK tranche is the 8th Green Bond issued by the AfDB under its Green Bond framework and the 4th in SEK benchmark format. The SEK bond pays a 0.375% coupon and was priced at a 99.859 discount to yield 0.4035%. A very high-quality order book over SEK 1.5 billion allowed the issuer to price at Mid swaps – 1 bp, down from flat guidance. 81% of the green bonds were purchased by Swedish domestic investors with the rest similarly going to German/Austrian, Swiss and UK investors but also some 2% to Japan. Pension funds purchased half of the bonds, while asset managers took another third of the SEK securities. Official institutions, corporates and insurers took up the rest.

    “It is inspiring to observe how the African Development Bank sources global capital to finance, lead and develop a strong platform for inclusive and environmental growth across Africa,” commented Christopher Flensborg, Head of Climate & Sustainable Finance in Large Corporates & Financial Institutions at SEB. “We know from many of our investors that the ability to participate in Africa through the Bank’s triple-A rating is highly appreciated and we look forward to many transactions like this.”

    These bonds are the closest to impact investing a Scandinavia investor can achieve in the fixed income market without taking on currency risk. The green bonds will support African countries’ transition to “green growth”, climate change mitigation and adaptation and fund projects in renewable energy, energy efficiency, clean transportation, biosphere conservation and sustainable water and wastewater management. The social bonds will support sustainable economic development and social progress in Africa by funding projects for poverty reduction and job creation, inclusive growth across age, gender and geography, and improving the quality of life for the people of Africa.

    “As a pioneering participant in the SRI market, the African Development Bank is delighted to have launched a dual tranche transaction incorporating the first ever Social Bond denominated in Norwegian Kroner, partnered with a Green Bond in Swedish Kroner,” said Hassatou N’Sele, Treasurer of the AfDB. “Both tranches were driven by strong Scandinavian demand, a region that has been a very strong supporter of the sustainable investment market. The Bank’s Social and Green Bond programmes allow the Bank to highlight its development mandate to the investor community and enable them to ensure that they too can play a significant part in improving the lives of the people of Africa.”

    Picture © African Development Bank

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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