Africa Development Bank Announces a US$463.9mn Kangaroo Bond

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NAIROBI, Kenya, Jun14 – The African Development Bank (AfDB) has unveiled a US$463.9 million 5.5-year Kangaroo bond.

In a statement, AfDB says the transaction, which marks its return to the Australian dollar bond market, was led by Nomura and RBC Capital Markets.

The fixed income instrument, which is a foreign bond issued in the Australian market by non-Australian firms and is denominated in Australian currency, is the institution’s first benchmark Kangaroo since early 2018 and its first in the mid-curve since 2015.

It is also the largest AUD trade ever issued by the Bank.

More than 30 investors participated in the deal, with a total order book of more than A$775 million, leading to an upsize of the trade from the announced size of A$250-300 million to the final size of A$600 million.

These included a strong cohort of Australian investors, while fund managers were the major investor type.

African Development Bank Treasurer Hassatou N’sele said the Covid-19 pandemic had led to a rise in global issuances of social bonds.

“Following on from the ground breaking USD$3.1 bn 3 year ‘Fight Covid-19’ Social Bond we issued in 2020, we’re glad to see that public domestic markets, like the Kangaroo bond market, are now seeing similar development in terms of interest from dedicated ESG investors, which provided additional momentum enabling us to print the largest trade we’ve ever done in AUD”.

The African Development Bank’s social bonds have use of proceeds allocated to projects that alleviate or mitigate social issues such as improving access to electricity, water and sanitation, and improving livelihoods through flood-risk reduction and access to clean transportation and employment generation.

Data by KangaNews show that the African Development Bank had A$1.75 billion of bonds mature between its 2015 benchmark deal and its most recent.

Keith Werner, Manager of Capital Markets and Financial Operations, said 38 percent of investors in the deal had a socially responsible investment approach and that the African Development Bank intends to issue more social bonds in Australian dollars.

“In addition to the important contribution that socially responsible investors had to the success of this trade, it’s also gratifying to see such a large portion of the investors (41%) were domestic, which is an area where we haven’t seen strong support historically. We look forward to leveraging this momentum and continue evaluating opportunities in the future in this market”, Werner said.

The Australian dollar is the fifth currency in which the African Development Bank has issued social bonds since it established the program in 2017, following deals in euros, US dollars, Norwegian kroner and Swedish kronor.

In December 2016, the African Development Bank launched its inaugural Kangaroo Green Bond. This transaction followed successful outings in USD and SEK Benchmark formats.

According to Investopedia, bond issuers that want access to investors and lenders in the Australian debt market would issue a bond referred to as a kangaroo bond, named in recognition of the country’s national animal emblem. A kangaroo bond is a foreign bond issued in Australian dollars by non-domestic entities, including corporations, financial institutions, and governments.

“Simply put, a foreign bond is issued in a domestic market by a foreign issuer in the currency of the domestic country. Foreign bonds are mainly used to provide issuers with access to another capital market outside of their own to raise capital,” Investopedia says in a statement.

The resource site adds that major corporations and/or investment firms looking to diversify their holdings and improve their overall currency exposures can use kangaroo bonds to raise funds in Australian dollars.

Kangaroo bonds are typically issued when interest rates in Australia are low relative to the foreign corporation’s domestic rates, thus, lowering the foreign issuer’s overall interest expense and cost of borrowing.

The platform adds that such a bond is an attractive investment venture for domestic investors who are not exposed to currency risk since the bonds are denominated in their local currency.

“Investors who wish to diversify their portfolios beyond their local borders may opt for these bonds and earn incremental yield. In effect, kangaroo bonds provide an opportunity to invest in foreign companies without having to manage the effects of currency exchange fluctuations.”

Wanjiku Njuguna is a Kenyan-based business reporter with experience of more than eight years.

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