The African Development Bank (AfDB) has raised a record $3 billion in a three-year bond to help ease the economic and social impact of the Covid-19 pandemic on African economies.
The bond attracted interest from central banks and official institutions, bank treasuries, and asset managers including Socially Responsible Investors, with bids exceeding $4.6 billion, according to a statement from AfDB.
The debt, the largest social bond ever launched in international capital markets to date, and the largest dollar benchmark ever issued by the bank, will pay an interest rate of 0.75 per cent.
The social bond market developed after the UN launched the Sustainable Development Goals in 2016, uniting the world in a mission to end poverty, fight inequality and tackle climate change.
One of the results of the SDGs was that a growing number of investors started to focus on environmental, social and governance standards in their investment decisions.
French international banking group BNP Paribas S.A. says the recent growth in social bond issues has been strong.
Of the $608 billion in cumulative sustainable issuance, social bonds accounted for 6.5 per cent of all issues between 2016 and 2019, representing a five-fold increase in cumulative total social bond issuance in the same period.
The lion's share of these instruments (77 per cent) are issued by sovereigns, supra-nationals and agencies, followed by financial institutions (21 per cent) and corporates (two per cent).
It is, however, argued that despite the rapid growth of social bond issuance volumes and a similar return and credit risk profile as conventional fixed income instruments, the market is still dwarfed by green bonds.
But this may change once more corporates begin issuing social bonds. Institutional investors are now turning their attention to social bonds to integrate social impacts into their portfolios.
AfDB aims to provide flexible responses to lessen the severe economic and social impact of the Covid-19 pandemic on its regional member countries and Africa’s private sector.
“These are critical times for Africa as it addresses the challenges resulting from the coronavirus. The African Development Bank is taking bold measures to support African countries,” said Akinwumi Adesina, the bank’s president.
“This $3 billion Covid-19 bond issuance is the first part of our comprehensive response that will soon be announced. This is indeed the largest social bond transaction to date in capital markets.”