The African Development Bank (AfDB) is taking an innovative step by planning to issue its inaugural hybrid capital bond, marking a significant move in its mission to promote economic and social development across the continent. As outlined in its 2022-2026 development strategy, AfDB’s core focus is on fortifying institutions, strengthening economies, and fostering resilient societies throughout Africa over the next five years.

According to the 2023 bank’s Economic Outlook tagged “Mobilising Private Sector Financing for Climate and Green Growth in Africa,” there is the urgency to address climate change and promote environmentally sustainable development. The report also indicates  that Africa faces substantial economic risks associated with increasingly frequent extreme weather events, which can strain fiscal resources. To mitigate these risks, fast-tracking climate action and green transitions are imperative to ensure inclusive and sustainable development across the continent.

Sources at the bank confirmed its intention to issue its first hybrid capital bond before the end of the year, provided that financial markets remain stable. While not disclosing the specific amount or pricing, they emphasised that the Bond would have “100% equity content.”

Hybrid Capital Bonds, in essence, blend the characteristics of both debt and equity instruments. These bonds usually carry lower credit ratings compared to senior bonds. AfDB’s decision to enter this market aligns with the ongoing efforts of multilateral development banks to optimize their balance sheets and employ innovative financing mechanisms to bolster development initiatives and confront climate change challenges.

The perpetual hybrid notes will be issued as part of AfDB’s strategy to enhance financing for developing economies, thereby extending the institution’s impact. The bank is meticulously observing market conditions, awaiting the ideal opportunity for the bond’s launch.