African Development Bank launches landmark US$750m sustainable hybrid bond

The first ever hybrid capital transaction from a multilateral development bank is aimed at financing eligible environmental and social projects.

With growing urgency around the near term 2030 Sustainable Development agenda, adopted by all UN member states in 2015, eyes are firmly fixed on the role of finance.

The UN Joint SDG fund, supported by BNP Paribas, has identified an SDG financing gap for developing countries estimated at US$4.2 trillion per year. For Africa, these needs are substantial, estimated at US$194 billion annually to achieve the Sustainable Development Goals by 2030.

In this context, the African Development Bank (AfDB) Group has a mission to spur sustainable and green economic development and social progress in its Regional Member Countries (RMCs) and achieve 14 of the 17 SDGs that will transform the lives of African people.

As one of the first multilateral development banks (MDBs) to issue green and social bonds, today the AfDB continues to harness sustainable finance solutions under its Sustainable Bond framework. This includes the use of hybrid capital, following a call from G20 leaders in September 2023 to make use of this and other innovative financing solutions to maximise development impact.

A landmark transaction

On 30 January 2024, the AfDB launched a US$750 million global benchmark perpetual sustainable hybrid bond, representing the first ever hybrid capital transaction from a multilateral development bank (MDB).

BNP Paribas supported AFDB as Joint Structuring Agent, Joint Global Coordinator and Joint Bookrunner.

The hybrid capital bond was classified as having a 100% equity content, and therefore allows the bank to leverage the hybrid capital to fund exclusively environmental and social projects. 

Under the AfDB’s newly established Sustainable Bond Framework, the bank aims to finance a combined portfolio of eligible green and social projects. Categories of green projects include renewable energy generation, energy efficiency and sustainable management of natural resources, land and water.

For example the sustainable management of water systems, acknowledged as a building block for life and a basic human right, has a critical impact on the health and prosperity of communities, as well as promoting biodiversity, sustainable agriculture and climate-related challenges. 

Social projects include access to basic infrastructure and essential services, as well as food security and socioeconomic advancement and empowerment.

Moody’s Investors Service acted as an independent reviewer and provider of the Second Party Opinion on the AfDB’s Sustainable Bond Framework and concluded that the framework demonstrates a “significant” contribution to sustainability.

Hassatou Diop N’Sele, Vice President for Finance and Chief Financial Officer of the AfDB Group notes: “This landmark transaction was received with marked enthusiasm by a broad range of investors. It paves the way for the African Development Bank and other AAA-rated Multilateral Development Banks to further leverage their capital base and increase their support to Africa and the developing world, who are facing multiple crises and long-term development challenges, in a context of constrained development resources.”

Benjamin de Forton, SSA DCM at BNP Paribas comments: “This transaction demonstrates that hybrid transactions are a highly effective tool in allowing development banks to mobilise significant additional finance towards adaptation and mitigation solutions.”