GlobalCapital welcomed an exclusive group of SSA issuers and investors for a private GC Live breakfast briefing dedicated to SSA Hybrids on February 27 in London.

The development of hybrid capital for supranational and agencies issuers is one of the most exciting developments in the capital markets over the last couple of years. The SSA sector is well known in the bond markets as issuers of some of the most popular bonds; popular because they are seen as very simple, liquid and highly rated, often AAA.

The possibility that a new asset class could emerge for SSA paper that is subordinated with a much more complex credit structure is therefore attracting a lot of interest. The ultimate purpose, of course, is to raise more capital for public agencies, to give them more capacity to fulfil their mandates of financing sustainable development, especially in developing countries.

A few institutions have been working on deals behind the scenes for several years, including the African Development Bank, which has been preparing to issue since 2020. But what really galvanised attention was the publication in July 2022 of a report to the G20 on multilateral development banks’ capital adequacy frameworks. Unlike many other worthy reports on how to make MDBs capital go further, this one really captured the attention of policymakers and of the MDBs themselves.

One of its recommendations was that MDBs could issue hybrid capital. Because of the strong buy-in to the CAF report by MDB shareholders, the sector has really woken up to this topic and many institutions are now exploring it. The World Bank agreed its first hybrid issue in a private placement with the German government last September. In January, the African Development Bank kickstarted the asset class by issuing the first deal, for $750 million, in the public market.

This proved that an investor base could be assembled that would buy a sizeable deal at a price that worked for triple-A rated MDBs. But although the asset class has now definitely begun, there is a long way to go. Some policymakers and market participants remain sceptical that it can become a fully developed asset class with a stable investor following and become a reliable and useful source of capital for public institutions. In short, there is all to play for.