The African Development Bank launched a A$600 million (US$463.9 million) 5.5-year Kangaroo bond, marking its return to the Australian dollar bond market.
The transaction, announced on 8 June, was led by Nomura and RBC Capital Markets. It is the institution’s first benchmark Kangaroo since early 2018 and its first in the mid-curve since 2015. It is also the largest AUD trade ever issued by the Bank. More than 30 investors participated in the deal, with a total order book of more than A$775 million, leading to an upsize of the trade from the announced size of A$250-300 million to the final size of A$600 million. These included a strong cohort of Australian investors, while fund managers were the major investor type.
African Development Bank Treasurer Hassatou N’sele said the Covid-19 pandemic had led to a rise in global issuances of social bonds.
“Following on from the ground breaking USD$3.1 bln 3 year ‘Fight Covid-19’ Social Bond we issued in 2020, we’re glad to see that public domestic markets, like the Kangaroo bond market, are now seeing similar development in terms of interest from dedicated ESG investors, which provided additional momentum enabling us to print the largest trade we’ve ever done in AUD”.
The African Development Bank’s social bonds have use of proceeds allocated to projects that alleviate or mitigate social issues such as improving access to electricity, water and sanitation, and improving livelihoods through flood-risk reduction and access to clean transportation and employment generation.
Recent KangaNews data show that the African Development Bank had A$1.75 billion of bonds mature between its 2015 benchmark deal and its most recent. Keith Werner, Manager of Capital Markets and Financial Operations, said 38 per cent of investors in the deal had a socially responsible investment approach and that the African Development Bank intends to issue more social bonds in Australian dollars.
“In addition to the important contribution that socially responsible investors had to the success of this trade, it’s also gratifying to see such a large portion of the investors (41%) were domestic, which is an area where we haven’t seen strong support historically. We look forward to leveraging this momentum and continue evaluating opportunities in the future in this market”, Werner said.
The Australian dollar is the fifth currency in which the African Development Bank has issued social bonds since it established the program in 2017, following deals in euros, US dollars, Norwegian kroner and Swedish kronor.
In December 2016, the African Development Bank launched its inaugural Kangaroo Green Bond. This transaction followed successful outings in USD and SEK Benchmark formats.
A Kangaroo bond is a foreign bond issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to the securities regulations of Australia. A Kangaroo bond is also known as a “matilda bond.”
Drastic Decline in FGN Bond Listings Raises Concerns Over Government Borrowing
Data from the Nigerian Exchange Limited (NGX) has shown that the value of listed Federal Government of Nigeria (FGN) Bonds on the exchange experienced a decline of 99.9% in the eight months ending on August 31, 2023.
Plummeting from N1.6 trillion recorded during the corresponding period in 2022 to a mere N148.2 billion.
The stark contrast in FGN Bond listings between the two years has raised eyebrows and prompted experts to delve into the implications of this significant shift.
Analysis of NGX data revealed that the bonds listed this year primarily consisted of the FGN Savings Bond and Sukuk, whereas the previous year featured a combination of both Federal Government Bonds and Savings Bonds.
Among the listings, the FGN Sukuk stood out with the highest recorded value of N130 billion for the period under review.
Analysts have identified several factors contributing to the stark decline in FGN Bond listings.
David Adonri, an analyst and Vice Executive Chairman at HighCap Securities Limited, commented on this development, and said, “The reduction of FGN Bond listing could be an indication that the government borrowed less in the domestic market, and its implication is that it could affect liquidity in the secondary market.”
He continued, “The decline could also be that the FGN Bonds were not listed on the Exchange during the period under review as only the Savings Bonds were captured as well as Sukuk.”
Adonri highlighted concerns about the country’s debt profile, both domestically and internationally, saying, “Both externally and internally, the immediate past government had taken more debt. This is increasing the risk of sovereign default and economic nightmares.” He also noted the adverse effects on the real sector, explaining that “the borrowing has now reached the alarming point of crowding out the productive real sector.”
Tajudeen Olayinka, an Investment Banker and Stockbroker, echoed similar sentiments, saying, “If there was an increase in debt listings in the market, it brings about increased liquidity and trading activities in the market, but the drop in the eight-month period could be largely as a result of higher yields in other competing instruments.”
Olayinka also speculated that “the drop in the FGN Bond listing could also be that there was less borrowing by the government in the primary market so not much to offer for listing in the secondary market.”
DMO’s July 2023 FGN Offering Oversubscribed by 182.73 Percent
The Debt Management Office (DMO) on Wednesday reported that its July 2023 Federal Government of Nigeria (FGN) bond offering received overwhelming investor interest, surpassing all expectations with an oversubscription rate of 182.73 percent.
The DMO, responsible for managing the nation’s debt, reopened the market for two 10-year, one 15-year, and one 30-year FGN bonds, collectively valued at N657.84 billion.
The July 2023 offering also recorded a month-on-month increase of 39.03 percent, equivalent to N184.68 billion when compared to the N473.16 billion sold in June 2023.
This was revealed in the FMDQ Exchange financial markets monthly report for July, which was released on Wednesday.
The oversubscribed FGN bond offering in July, combined with the impressive performance in the treasury bills market, where the DMO sold bills valued at N406.10 billion, underscores Nigeria’s fiscal strength.
During the month under review, the Central Bank of Nigeria did not conduct any public OMO bills auctions within the period under review.
The average FGN bond coupon rates in July 2023 dipped across 10-year, 15-year and 30-year segments to 13.05 percent, 14.10 percent and 14.30 percent respectively.
It was also reported that there were no corporate bonds listed on FMDQ Exchange in July 2023 compared to N17.50bn worth of corporate bonds listed in June 2023.
Saudi Arabia Executes $9.5 Billion Debt Buyback and Sukuk Issuance
Saudi Arabia has completed an early purchase of more than 35.7 billion riyals ($9.5 billion) of outstanding debt and will issue about 35.9 billion riyals in sukuk as the kingdom plans to bolster its domestic market.
The government bought a portion of its debt instruments maturing in 2024, 2025 and 2026, the National Debt Management Center said in a statement on Sunday.
The buyback represents the largest early purchase transaction arranged by NDMC.
The Saudi government will issue new sukuk worth 35.9 billion riyals under the Local Saudi Sukuk Issuance Program, NDMC said. The program will be divided into four tranches, with issuances maturing in 2031, 2032, 2033 and 2038.
The initiative is part of NDMC’s efforts to strengthen the domestic market and “to keep up with market developments which have been reflected positively on the growing trading volume in the secondary market,” the agency said.
The transaction will also align NDMC’s efforts with other initiatives to enhance public finances in the medium and long term. HSBC Saudi Arabia, Al Rajhi Capital, SNB Capital, and AlJazira Capital have been appointed as joint lead managers to lead the transaction.
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