AfDB set to make history with issuance of $500m – $1bn hybrid capital note

African Development Bank (AfDB) is set to make history as the first multilateral lender to issue a hybrid note, if all goes well, the bank’s acting treasurer, Omar Sefiani has disclosed in an interview with Reuters.

According to Omar, the note which will be sized between $500 million and $1 billion will be issued before the end of November 2023 if the market conditions are right.

Omar noted, “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.”

READ ALSO: AfDB, FCMB sign $50m agreement to boost finance for SMEs, Women-Empowered Businesses

Hybrid capital notes are a type of hybrid security. There are three types of hybrid capital notes which are, perpetual debt securities, subordinated debt securities, and knock-out debt securities.

One critical feature of hybrid capital notes is the equity-like feature, in that they function like shares and may not mature. They usually have lower credit ratings because the issuer may defer interest payments for years and may not repay capital for decades.

Hence, any hybrid notes to be issued by AfDB will have a lower credit rating than the bank’s AAA-rated bonds.

The hybrid note’s conditions permit a permanent reduction in the initial amount borrowed if the AfDB encounters financial strain and requires its owners to increase its funds.

Additionally, it’s possible to skip payments on the interest, as detailed in a presentation for investors from September.

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