African Development Bank launches its second Hybrid Capital transaction: a USD 500 million Perpetual Non-Call 10-year (Perp NC10) Hybrid Capital

On Tuesday 23 September, the African Development Bank (“AfDB”), rated Aaa/AAA/AAA (Moody’s/S&P/Fitch) successfully launched and priced its second hybrid capital transaction, a USD 500 million perpetual subordinated hybrid capital notes, at an initial coupon of 5.875% (annual) until August 2035, with a first call date at the Bank’s discretion in 10 years. The high quality of the order book highlights the growing consolidation of an investor base supportive of the product.

The success of this second hybrid capital transaction highlights the AfDB’s pioneering role in using innovative solutions to optimize its balance sheet, in line with the G20 recommendations, while also playing a key role in the further development of the MDB Hybrid Capital asset class.

The AfDB achieved a top quality and granular orderbook with close to 200 investors. Investor demand was very strong with a peak orderbook in excess of USD 4 billion (8x oversubscribed). Asset Managers took the majority of the allocation (60%), followed by hedge funds (29%), pension funds/insurance (9%) and banks/private banks (2%). Demand came mainly from the UK (56%), followed by Europe, Middle East and Africa (21%), Americas (15%) and Asia (8%).

BNP Paribas and Goldman Sachs acted as Joint Structuring Agents and the Joint Lead Managers for the new issue were BNP Paribas, Citi, Goldman Sachs International, HSBC and UBS.

Hybrid capital: an innovative form of capital which increases lending capacity

It is expected that the Notes will receive 100% equity content by Fitch, Moody's and S&P, and will be treated as 100% equity under the International Financial Reporting Standards (IFRS) accounting rules. They will also be accounted for as 100% equity in AfDB's own internal capital adequacy metrics.

The Notes are perpetual and have a fixed rate coupon of 5.875% payable annually with a reset mechanism on the first reset date in August 2035 and every 5 years thereafter at a reset rate equal to the prevalent 5-year US Treasury + 165.3bps. The AfDB has the option to redeem all of the Notes on the first reset date and every reset date thereafter (every 5 years) and on any day during the 3-month period preceding each reset date. The Notes may also be redeemed upon a rating methodology or accounting event or at any time pursuant to a substantial repurchase event.

As a notable difference from the inaugural hybrid, these Notes contain an Alignment Event, whereby the AfDB has the option, at its full and sole discretion, to make changes to the Notes (via substitution or variation) upon a change in rating agency criteria. This can only be done at terms that would not leave investors worse off and is subject to the AfDB’s determination that such inclusion will not negatively impact the level of equity content assigned. The inclusion of this provision was driven by the fact that rating agencies’ methodologies can evolve over time and may allow terms that they previously did not allow under their current criteria.

Coupon payments are discretionary and must be mandatorily cancelled in case the ratio of total assets to paid-in capital and reserves exceeds 7.5x. If, on any interest payment date, any payment of interest is not made as a result of an optional or a mandatory interest cancellation, the AfDB shall not make any discretionary payments to shareholders until the interest payment due on any subsequent interest payment date is made in full. The Notes are subordinated and subject to a full and permanent principal write-down in the event a call on callable capital is made.

These Notes are not issued with a sustainable label, unlike the inaugural hybrid transaction, with the use of proceeds as ordinary operations to deploy additional financing in line with the AfDB’s Ten-Year Strategy and its “High 5” priorities to accelerate Africa’s development.

Hassatou N’Sele, Vice President for Finance and Chief Financial Officer of the African Development Bank Group, said: “The success of the African Development Bank's issuance, which attracted a peak order book of more than $4 billion from 200 investors, demonstrates market confidence in our hybrid capital. This is another step in the development of this asset class and a powerful way to rally private sector investment in support of development.”

Omar Sefiani, Treasurer of the African Development Bank Group, said: “Today, the African Development Bank successfully executed its second hybrid capital transaction.  The high quality of the order book highlights the growing consolidation of an investor base supportive of the product. This marks a significant milestone for this asset class that is still growing. Hybrid capital continues to play an important role in the Bank's capital management toolkit. By boosting the Bank’s lending capacity, hybrid capital allows the Bank to deliver more for communities in Africa."

Keith Werner, Division Manager, Capital Markets and Financial Operations at the African Development Bank, said: “We are very pleased by the broad investor participation in this second hybrid capital issuance, which was significantly oversubscribed. Notably, the increased investor demand from the real money sector, which more than doubled from the first issuance, demonstrates a growing confidence in this new product, which enables us to strengthen our capital position and accelerate transformative projects across Africa."

Transaction Execution

• On Monday 22 September 2025, the African Development Bank, rated Aaa (Moody's, stable) / AAA (S&P, stable) / AAA (Fitch, stable) / AAA (Japan Credit Rating Agency, stable), mandated BNP Paribas and Goldman Sachs International as Joint Structuring Advisers, and BNP Paribas, Citi, Goldman Sachs International, HSBC and UBS as Joint Bookrunners to arrange a series of global fixed income investor calls. The deal-related roadshow met with a spectacular reception with over 150 investors involved across the globe.
• Following strong investor engagement and Indications of Interest (IoIs) gathered on day 1, the African Development Bank decided to open the books with Initial Pricing Thoughts (IPTs) at 6.375% area (annual coupon) on Tuesday 23 September 2025 at 07:32am UKT.
• The orderbook grew quickly throughout the European morning, with investor demand in excess of USD 2.8 billion by 12:00 UKT.
• This provided further momentum, and supported further high-quality accounts to enter the book, as the book grew to in excess of USD 4 billion, which allowed the Bank to set the coupon at 5.875% and the issue size at USD 500 million, launching the transaction at 15:27 UKT.
• At 18:19 UKT, the transaction officially priced with an annual coupon of 5.875% (equivalent to 5.791% semi-annual) corresponding to a final spread of 165.3bps vs US Treasuries (the interpolated 9.8-year US Treasury yield).

Source: AfDB