African DFIs push ahead with joint securitisation project: IFR
The African Development Bank and the Development Bank of Southern Africa published on Monday a request for consultants to help them with a proposed first-of-its-kind multi-originator synthetic securitisation programme first announced in December.
By transferring credit risk associated with the development banks' loan portfolios to third-party private-sector investors, the programme is intended to unlock lending capacity for new development projects. The project builds on AfDB's "Room2Run" synthetic securitisation, which closed in 2018.
The development banks first unveiled the project in December at the Africa Investment Forum 2024 Market Days in Rabat, Morocco, where they signed a letter of intent with investors Academy Securities, Africa50 and Newmarket.
"The proposed multi-issuer securitisation vehicle we are shaping – just like with [special drawing rights] rechanneling through hybrid capital and other innovations we continue to explore – exemplifies how collaboration between multilateral development banks and private sector investors can unlock transformative capital flows to address Africa's financing gaps," said Akinwumi Adesina, president of the African Development Bank, in a press release at the time.
At first, AfDB and DBSA intend to securitise a combined reference portfolio of roughly US$2bn of their loans, according to a request for proposal published on Monday. By pooling loans originated by multiple development finance institutions, they say they will be able to create larger-scale pools of diversified assets to appeal to institutional investors.
According to the RFP, the development banks are looking for advice on how best to structure the multi-originator transaction, which is expected to feature a special purpose vehicle that would consolidate cashflows from the reference portfolios and issue collateralised loan obligations to institutional investors.
The banks are looking at a revolving structure that would allow the portfolio to be replenished with new assets over time, rather than a static transaction.
Consultants looking to bid for the advisory role have until May 23 to send proposals to the two development banks.
Growing momentum
The project is part of a broader push by multilateral lenders to mobilise private capital to boost their lending firepower. AfDB has been a trailblazer in this area, kick-starting development bank securitisation when it sold the mezzanine risk associated with a US$1bn portfolio of 47 loans to private-sector borrowers with its Room2Run transaction.
Since then, the Asian Development Bank, the World Bank, the West African Development Bank (known as BOAD) and IDB Invest have also carried portfolio risk transfers, sometimes with donor governments and sometimes with insurers, but increasingly also in the form of securitisations.
In 2023, BOAD carried out a CFA Fr150bn (US$250m) securitisation called BOAD DOLI-P, underwritten by NSIA Finance, SGI Togo and Impaxis Securities, and the following year IDB Invest completed its "Scaling4Impact" transaction, transferring US$100m of mezzanine risk on a US$1bn portfolio to Newmarket Capital and insurers AXA XL and Axis.
Also last year, the World Bank's private sector lending arm, the International Finance Corp, revealed more details of its Warehouse-Enabled Securitization Platform. The up to US$2bn platform (US$1bn from IFC) will co-finance Paris Agreement-aligned emerging market loans by MDBs and hold them until packaged into securities, according to a tender document last year seeking a financial adviser to WESP. BlackRock's independent financial markets advisory business won the tender.
Recasts, adds reference to December announcement, investors and structural features.
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