The SSA sector is well known in the bond market as issuers of some of the most popular bonds – popular because they are seen as very simple, liquid and highly rated, often triple-A.

The possibility that a new asset class could emerge, of SSA paper that is subordinated, with a much more complex credit structure, is therefore attracting intense interest. The ultimate purpose, of course, is to raise more capital for public agencies, to give them more capacity to fulfil their mandates of financing sustainable development, especially in developing countries.

A few institutions have been working on deals behind the scenes for several years, including the African Development Bank, which has been preparing to issue since 2020. But what really galvanised attention was the publication in July 2022 of a report to the G20 on multilateral development banks’ Capital Adequacy Frameworks. Unlike many other worthy reports on how to make the MDBs’ capital go further, this one really captured the attention of policymakers and of the MDBs themselves. One of its recommendations was that MDBs could issue hybrid capital. Because of the strong buy-in to the CAF report by MDB shareholders, the sector has really got working on the topic, and many institutions are exploring it. The World Bank agreed its first hybrid issue in a private placement to the German government last September, and in January the African Development Bank really kickstarted the asset class by issuing its first deal for $750m in the public market.

This proved that an investor base could be assembled that would buy a sizeable deal at a price that worked for a triple-A rated MDB. But although the asset class has now definitely begun, there is a long way to go. Some policymakers and market participants remain sceptical that it can become a fully developed asset class, with a stable investor following, and become a reliable and useful source of capital for public institutions. There is all to play for.