Local currency issuance on the rise

Asian Development Bank Special Report 2019
3 min read
Steve Garton

The ADB is ramping up its presence in Asia’s local currency bond markets.

In the first four months of this year, the bank has sold bonds in – or linked to – Philippine pesos, Indonesian rupiah, Kazakh tenge, New Zealand and Australian dollars, as well as US dollars, British pounds and Swedish kronor.

The expanded local currency programme is a strategic move that fills a dual purpose. As well as allowing the ADB to provide more loans in its clients’ own currencies, it also aims to spur the development of the region’s capital markets.

This year’s deals include several novel features. The Rp1.2trn (US$84m) Komodo bond – an offshore financing denominated in Indonesian rupiah but settled in US dollars – was the longest tenor local currency bond ever issued by ADB, with a maturity of 15 years. Lead manager JP Morgan sold 70% to European investors, with the remainder going to US buyers. Institutions, banks and retail investors participated in the issue in early March.

The deal priced at a 7.8% coupon, well inside the Indonesian 15-year government benchmark of around 8.2% at the time.

The ADB’s debut in Kazakhstan’s local market in January was the bank’s first inflation-linked offering in any currency. Led by local broker Tengri Capital, the five-year non-call three and seven non-call five offerings raised a combined US$80m and pay coupons linked to the local consumer price index. The proceeds will go towards funding an energy project in Kazakhstan, where tariffs are linked to inflation. In a further innovation, the domestic deal was structured under the ADB’s global MTN programme and under English law.

The bank also sold its first offshore Philippine peso bonds in February, raising Ps5.22bn (US$100m) in a 5.25% four-year deal, arranged by JP Morgan.

The ADB’s growing local currency programme reflects a strategic move to reduce foreign exchange risk for its borrowers.

In 2018, more than 30% of the bank’s private sector operations were disbursed in local currency, and it is expected the volume will increase.

“There is a big push to do more in some of the smaller markets,” said Michael Jordan, assistant treasurer. “We are building local currency pools and managing liquidity so we have funding ready to go when our clients need it.”

Green finance is also a growing focus for the ADB, which smashed records in the Australian market in January with a debut A$1bn (US$713m) five-year Green Kangaroo bond. That deal, which took advantage of beneficial swap costs and a growing Australian market for Green bonds, priced at 42bp over asset swaps and will go towards climate-friendly projects under the ADB’s regular operations.

“We have committed to issue at least one Green bond each year,” said Pierre van Peteghem, treasurer. “Strategy 2030 calls for three-quarters of our operations to tackle issues related to climate change within the next decade. Definitely that has implications for the size of our Green bond programme.”

“You can expect more, because there will be more operations that are eligible.”

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