IDB prints SDB benchmark in volatile market

IDB prints SDB benchmark in volatile market

Bonds Asset Management Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Funds United States Latin America Coronavirus

The Inter-American Development Bank (IDB) said on Monday that it set a new sustainable development bond (SDB) global benchmark by selling $2 billion worth of five-year notes, following an announcement last week that it could lend up to $12 billion to contain the coronavirus outbreak in Latin America.

Led by Crédit Agricole, Deutsche Bank, Goldman Sachs and JPMorgan, the IDB priced the new five-year notes with a coupon of 0.875% to yield 0.885%, or 46.2 basis points above the 0.5% US Treasury notes due in March 2025.

Investors placed $4.97 billion in orders, which convinced the development bank to double the size of the deal to $2 billion, according to Laura Fan, the head of funding at the IDB.

"Even then, it was a very difficult allocation process," Fan said in a an email to LatinFinance. "The IDB was offering a yield on this bond that was attractive relative to the underlying US Treasuries," she said. "This generated high quality demand."

Central banks and other official institutions acquired 72% of the notes on offer, followed by commercial banks with 14%, asset managers with 11% and pension funds, insurance companies and corporate buyers with 3%. Investors from Asia Pacific bought 46% of the five-year notes, while bond buyers in the Americas got 28% and investors in Europe, the Middle East and Africa (EMEA) took 26%, according to the IDB.

The latest sale marked the IDB's first SDB in US dollars and its largest SDB issue to date, Fan said. The IDB could "contemplate" bringing more SDB deals to the market if there is investor demand, she added.

For the $12 billion loan program to contain the coronavirus pandemic, the IDB has said will focus on four areas: immediate public health response, safety nets for vulnerable populations, economic productivity and employment and fiscal policies to lessen economic impacts.