By Stanley Onyeka, Lagos
The African Development Bank (AfDB) Group, together with the Development Bank of Southern Africa (DBSA), and key institutional investors Academy Securities, Africa50, and Newmarket, have signed a Letter of Intent to explore the establishment of a multi-originator synthetic securitization transaction.
The signing took place on Friday during the Africa Investment Forum 2024 Market Days, in Rabat, Morocco, according to a statement.
The proposed multi-originator synthetic securitization platform is being designed as a revolving, evergreen vehicle to de-risk the balance sheets of development finance institutions operating in Africa, while providing attractive investment returns for private sector participants.
The agreement is said to mark a significant step in the AfDB Group’s realization of its vision embodied by its Ten-Year Strategy 2023-2032, which p emphasizes private capital mobilization and derisking as central themes to redress the slow pace of delivery of the Sustainable Development Goals (SDGs).
This is expected to build on the success of the Bank’s inaugural $1billion synthetic securitization transaction under its Room to Run Program in 2018.
The platform aims to feature a combined reference portfolio of approximately $1.5-2 billion in assets diversified across sectors, geographies, and risk profiles.
It will include loan and guarantee exposures that align with the AfDB and DBSA’s shared strategic priorities, particularly in climate finance, infrastructure, and financial intermediation.
The composition reflects a more granular and well diversified pool of assets to appeal to a broad spectrum of investors while
The multi-originator synthetic securitization platform seeks to transfer a mezzanine tranche credit risk to private sector investors while retaining senior tranche risk within the originators to allow AfDB and DBSA to unlock additional lending capacity for high-impact development projects and provide regulatory capital relief on a revolving basis.
The proposed multi-originator synthetic securitization platform is being designed as a revolving, evergreen vehicle to de-risk the balance sheets of development finance institutions operating in Africa, while providing attractive investment returns for private sector participants.
Hybrid capital
AfDB President, Dr Akinwumi Adesina, was quoted as saying: “The proposed multi-issuer securitization vehicle we are shaping – just like with SDR 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.”
On his part, CEO of DBSA, Boitumelo Mosako, said: “It is imperative that multilateral development institutions, asset managers, and institutional investors work as a system to scale up financing available for Africa’s growth.”
Similarly, Co-Founder & Managing Director of Newmarket, Molly Whitehouse, said: “We are proud of Newmarket’s role in the groundbreaking Room2Run transaction and excited about the growing opportunity set in the MDB sector.”
Mr. Whitehouse, an investor in the successful landmark first multilateral development bank securitization transaction launched in 2018, added: “With the SST Platform, we can extend these successes as we build on our partnership with AfDB and now DBSA.”
The Executive Director of ABS Capital Markets, Dan Schaeffer, expressed his enthusiasm to investigate how the asset management community can do more to encourage environment, social and governance (ESG) and sustainable lending across the continent through partnerships with development finance institutions such as AfDB and DBSA.
“This signing showcases the innovative spirit of the Africa Investment Forum and our commitment to delivering impactful solutions to emerging market development challenges,” he added.
Also, Chief Executive Officer of Africa 50, Alain Ebobissé, an investor in the first Room2Run transaction, said: “The original Room2Run investment was a landmark synthetic securitization and Africa50 is proud to have been a key participant in that transaction. We are thrilled to now continue building on its success.
“This initiative represents a pivotal opportunity to free up vital capital that can be strategically deployed to help bridge Africa’s infrastructure gap.Together, we can drive meaningful change and unlock the continent’s potential for sustainable growth.”
