Washington, D.C., February 4, 2021— IFC, a member of the World Bank Group, has issued its first bond swapped from fixed rate to the new SOFR (Secured Overnight Financing Rate) benchmark interest rate which is an alternative to the London Interbank Offered rate (LIBOR) that may cease to exist after 2021.
The swap was executed for IFC's $AUD155 million Kangaroo social bond 'tap', which increases the total raised by the initial trade to $AUD800 million Australian dollars (609 million USD equivalent).
This tap, or reopening of the bond, now represents IFC's debut trade swapped to SOFR and is considered to be the first in the Kangaroo bond market.
The bond issuance is part of IFC's Social Bond Program, which was launched in March 2017 with a 500 million global benchmark bond denominated in U.S. dollars. The program gives investors the opportunity to have a positive impact on the lives of people living in developing countries, and at the same time enjoy a financial return on their investment. IFC's Social Bond Program expanded dramatically in 2020, with cumulative issuance now at over $3 billion. The program also supported projects within IFC's COVID-19 response package, as well as projects from IFC's established Banking on Women and Inclusive Business programs.
Proceeds from the social bond support projects that provide finance to low-income people, including buying from smallholder farmers, or offering access to housing, clean water, education, and affordable healthcare. The funds will also be used to help lending to women-owned enterprises, and fund projects such as those that lend mainly to women entrepreneurs, including refugee women fleeing conflict.
IFC entered into the SOFR interest rate swap for the bond with J.P. Morgan, swapping from fixed to floating to hedge the April 2035 bond.
The transition process from LIBOR to SOFR is continuously evolving and represents a significant change that will impact all participants in financial and capital markets globally. IFC is actively working towards a smooth transition to a successor benchmark rate.
"IFC's debut swap to SOFR is a milestone for IFC's transition away from LIBOR. Going forward, by swapping back all its new vanilla bond issuance in multiple currencies to SOFR, IFC, as an end-user of derivatives, hopes to contribute to the acceleration of the SOFR market development, and an easier transition for its own customer base," said Tom Ceusters, IFC Director, Treasury Market Operations.
"This AUD-USD cross-currency swap to SOFR is a reflection of the pragmatic approach we are taking to the alternative rates transition," Ceusters added. "IFC will continue to be proactive as we monitor market developments. We are happy to be active in the social bond market, unlocking additional funding to support the most vulnerable communities have access to finance and basic services for a resilient recovery from the pandemic."
Since the launch of the IFC Social Bond Program in March 2017, IFC has issued 53 social bonds in public and private markets across 11different currencies, amounting to a total volume of more than $3.5 billion.
IFC has played a leadership role in developing guidelines and procedures for the green bond market and the burgeoning social bond market. In 2020, IFC was elected the Chair of the Executive Committee of The Green, Social and Sustainability-Linked Bond Principles. This was a culmination of IFC's role chairing the Social Bond Working Group since its founding in 2016.
IFC Social Bond Terms
Issuer: IFC (International Finance Corporation)
Tap Amount: AUD $155 million
Settlement date: February 10, 2021
Maturity date: April 15, 2035
Issue price: 100%
Issue yield: 1.855%
Coupon: 1.5% semi-annual
Underwriters: Mizuho Securities Asia Limited
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2020, we invested $22 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.