The public sector bond market will be watching the Asian Infrastructure Investment Bank (AIIB), the International Development Association and the New Development Bank closely over the next year as they establish themselves as regular fixtures in the SSA market.
“In previous years, there may have been a question of whether there is room for all these new names and whether there would be some competition with existing supras,” says Lee Cumbes, head of public sector EMEA at Barclays in London. “However, the way the modern market is, there is plenty of cash available and a structural need for high quality assets that will sustain long term, successful programmes.”
IDA, the part of the World Bank that helps the world’s poorest countries, aims to carve out a $10bn-$15bn funding programme, in line with the International Finance Corp, its sister organisation, while AIIB is looking to secure authority to borrow $5bn-$6bn of long-term funding.
“Dollars are the cornerstone of our funding programme,” says Martine Mills Hagen, head of funding at AIIB in Beijing. “We’ll be looking to return to the dollar market as soon as we can. We want to be seen as a frequent issuer of dollars and if possible to be in the market in dollars more than once next year depending on market conditions.”
AIIB debut
In May, the Beijing-based supra, which has 100 approved members, became the newest addition to the supranational borrower community as it sold its debut bond with a $2.5bn five year global dollar benchmark, led by Bank of China, Barclays, Crédit Agricole, Goldman Sachs and TD Securities.
“It was long in the making,” says Mills Hagen. “We started working on our debut bond in the autumn of 2017 and had naively thought that we could issue in 2018.”
The delay was down to the supranational getting its global documentation in place, something it was very keen on in order to be seen as a global borrower. The end result was impressive as AIIB achieved a high quality and well subscribed order book and pricing at a spread of mid-swaps plus 6bp.
“It landed at exactly the right price for that credit, coming in line with the top supranationals,” says Cumbes at Barclays.
“They’ve established themselves as a platinum quality supranational right away and they’ll attract even more investors for their next bond. Others have had to pay their way into the market and then develop pricing over time, but a lot of work went in before AIIB announced the deal.”
Mills Hagen says: “It has always been our goal to become a diversified issuer. By the second quarter of 2020, we hope to have an SEC registered shelf, a global MTN programme, a Kangaroo bond programme and a Panda bond programme in place.”
AIIB was the first supranational to make its debut in the capital markets with a benchmark deal since the International Development Association’s $1.5bn five year bond in 2018.
In October, IDA returned to the capital markets for its debut euro bond, raising €1.25bn with a seven year euro benchmark at a spread of mid-swaps minus 6bp, led by Crédit Agricole, DZ Bank, JP Morgan and Natixis.
In addition to building a curve in dollars and euros, IDA is also keeping a close eye on other markets such as sterling, Australian, Canadian and New Zealand dollars and private placements.
“The different nature of IDA means they have their own distinct funding strategy,” says Cumbes. “They’re moving more quickly into a variety of major currency markets in benchmark form, to match their SDR [Special Drawing Rights] balance sheet.”
Bric by brick
The next supranational to arrive for a debut benchmark bond will be the New Development Bank, often called the “Brics Bank” due to the initials of its five founding members states — Brazil, Russia, India, China and South Africa. Unlike AIIB and IDA, NDB aims to match its lending with local currency bonds, rather than swap it. As a result, its needs in core markets are less immediate.
While the NDB has been busy growing its lending portfolio, it has only issued a pair of Panda bonds and a few trades from its Euro commercial paper programme.
But over the next year that is set to change.
NDB is looking to launch a dollar bond programme and tap into the offshore bond markets of its member countries such as as India, Russia and South Africa.
NDB is rated AA+ by S&P and Fitch, one notch below AIIB, IDA and other top tier supranationals. Nevertheless, it is expected to be warmly welcomed by investors.
“They are a very high quality institution that would find a strong market reception,” says Cumbes. “A benchmark transaction would transform their market profile.” GC
