World Bank to introduce $1b debut hybrid

The World Bank is planning to introduce a debut hybrid note worth up to $1 billion on the capital markets this year, a senior executive told Reuters.

This move comes as development banks are under increasing pressure to innovate and expand their lending activities.

The G20 group, comprising major economies, has encouraged multilateral lenders to explore hybrid financing models to optimise their balance sheets and enhance funding for assisting developing economies in tackling crises such as climate change.

After the African Development Bank (AfDB) pioneered the issuance of its hybrid capital note in January, making it the inaugural multilateral lender to initiate the move, the World Bank intends to emulate this initiative.

George Richardson, director of the capital markets and investment department at the World Bank Treasury, mentioned, “We are aiming for a potential pilot transaction sometime this year.” He emphasised the significance of exploring new avenues for fundraising and noted ongoing discussions with investors while closely monitoring market conditions.

Assessing the potential ratings for the new instrument, Richardson expressed confidence that hybrid capital issued by multilateral development banks would be better rated compared to senior, unsecured bonds, contrary to current rating agencies’ methodologies.

Moreover, while rating agencies typically assign hybrid capital ratings 3 to 5 notches below senior ratings, Richardson highlighted the unique governance and ownership structure of multilateral development banks, distinguishing them from commercial banks and corporations.

Moody‘s assigned an AA3 rating to the AfDB issue, three notches below the bank’s AAA-rated bonds. The AfDB hybrid issue traded at 97.6 cents on the dollar on Tuesday, as per LSEG data, slightly below its debut value of just over 100 cents in early February.