The African Development Bank (AfDB) is on the verge of becoming the first multilateral lender to venture into the issuance of hybrid notes. Omar Sefiani, the bank’s acting treasurer, revealed in an interview with Reuters that the issuance, anticipated to be between $500 million and $1 billion, is slated for the end of the month, contingent on favorable market conditions.
Sefiani explained, “We’ve been ready to issue since the end of September. Unfortunately, market conditions have not been ideal, and for us, it’s very important to get this transaction done right. It sets the tone for the following transactions.”
Hybrid capital notes represent a distinctive form of hybrid security, encompassing perpetual debt securities, subordinated debt securities, and knock-out debt securities. Notably, these instruments exhibit an equity-like feature, akin to shares, and may lack a maturity date. Consequently, they typically carry lower credit ratings due to potential deferral of interest payments for extended periods and the possibility of capital repayment spanning decades.
It is crucial to recognize that any hybrid notes introduced by the AfDB would likely bear a credit rating lower than the bank’s AAA-rated bonds. The inherent conditions of these hybrid notes allow for a permanent reduction in the initially borrowed amount should the AfDB face financial strain, compelling its owners to augment its funds.
Furthermore, the terms of the hybrid notes permit the bank to forgo interest payments, as outlined in an investor presentation from September.