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Tuesday, 18 June 2019

ADB funding team set for record year

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The ADB’s funding team is well on the way to its busiest year in the capital markets. The bank expects to issue a total of US$25bn–$30bn in 2017, up from US$20.6bn last year.

The jump is down to last year’s balance sheet restructuring, which combined the concessional resources of the Asian Development Fund with the bank’s ordinary capital resources.

“There is some refinancing and liability management to do around the ADF resources, which are mainly denominated in SDR,” said ADB Treasurer Pierre van Peteghem. “Yes, there has been a big jump this year, but you should absolutely not expect our borrowing to grow at 10% a year in the future.”

The bank has deliberately front-loaded its borrowing requirements in the first quarter of the year, matching a strategy employed by other supranational issuers at a time when spreads had moved in their favour.

Expectations that US rates will stay lower for longer has helped Triple A rated issuers access sub-Libor funds at up to three years while still offering investors a pick-up over US Treasuries. At the longer end of the curve, however, investor appetite is limited at the current spreads.

A US$3bn three-year in January priced 28.05bp over Treasuries, while a concurrent US$1bn 10-year tranche drew much less demand at a spread of 23.75bp. Citigroup, Goldman Sachs, JP Morgan and Nomura were in the driving seat.

That was followed by a US$3.75bn five-year global in February, the ADB’s largest single-tranche offering on record. The 2% notes priced at 26.95bp over Treasuries and 18bp over mid-swaps. Bank of America Merrill Lynch, HSBC, Morgan Stanley, and TD Securities ran the books.

March yielded a US$1bn four-year floater at 5bp over Libor through BNP Paribas, Goldman Sachs and Morgan Stanley.

Since the start of the year, the bank has also sold a €520m 20-year at 3bp over mid-swaps, and has visited the sterling and Australian dollar markets.

Perhaps the most interesting recent financing came in late March, when the ADB sold a 10-year New Zealand dollar bond to Japan’s Dai-Ichi Life Insurance, using its commitment to healthcare projects to attract an investor looking for social responsible exposure.

“We believe that there is great social value in becoming the world’s first institutional investor to purchase the bond that supports the ADB health program. Also, from an asset management point of view, we believe the bond offers a solid and attractive investment opportunity,” said Kazuyuki Shigemoto, general manager for global fixed income investment at Dai-Ichi Life. Credit Agricole arranged the NZ$140m (US$100m) deal.

Local currency funding has focused on developing regional markets where costs match – or improve on – the ADB’s hard currency lines.

Jonathan Grosvenor, an advisor to the treasurer and head of treasury client solutions, says the ADB will do more in Georgian lari and Indian rupees, following successful issues in 2016.

“We will increasingly look to issue in onshore and offshore bonds and use long-term cross-currency swaps for local currency funding,” he said.

The ADB issued in Georgia in June 2016, raising about US$30m in the local market to onlend to two microfinance lenders. It was especially active in the offshore rupee, or Masala, market in 2016 with five issues, including two reopenings. The Rs7bn (US$104m) tap of a five-year issue in September was especially well received among institutional investors, and subsequent taps have taken that line to a liquid Rs18.9bn.

Also on the cards is a return to the onshore Chinese market, where the ADB last sold so-called Panda bonds in 2009, and a potential debut in Indonesian rupiah.

“The ability for ADB to source local currency funding is a key risk mitigator for our borrowers, while also serving to support local capital market development,” Grosvenor said. 

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