SSAR Bond: AIIB’s US$2.5bn five-year bond

IFR Awards 2019
3 min read
Helene Durand

At the top table

The stakes were high for the Asian Infrastructure Development Bank as it approached its bond market debut in May.

The US$2.5bn five-year transaction was the culmination of more than three years of preparation and investor work for the freshly created multilateral development bank that will seek to fill an estimated US$26trn infrastructure funding gap. It was also a test of the structure of a bank in which China holds a 30.9% stake.

Positioning the name on a par with its peer group was therefore key for AIIB, the first MDB created from scratch since the 1990s.

"We really wanted to position ourselves in the correct peer group from the get-go and be viewed as a premium MDB," said Martine Mills Hagen, head of funding at AIIB.

"But there were a lot of investors who told us that, even though they liked the name, they didn't buy inaugural deals and needed to see a liquid curve first."

But AIIB's relentless work paid off and 67% of the bond was sold to central banks and official institutions.

"AIIB was a fresh start. The last global Triple A issuer was in the early 1990s," said Myriam Zapata, a director in the SSA DCM team at Credit Agricole, a lead manager along with Bank of China, Barclays, Goldman Sachs and TD Securities.

Making it on to investors' approved list was only one of the hurdles AIIB had to overcome. Unlike the other MDBs, AIIB is not exempt from US SEC approvals as the US is not a shareholder and it had to go through an 18-month process to get the correct documentation in place so it could tap into every possible investor base.

"It was endless, and we didn't have the luxury of sitting back and watching the markets," Mills Hagen said. "There was a lot of political uncertainty at the time and the trade war between China and the US was not ideal."

But AIIB not only managed to overcome that but did it with flair, pricing its transaction at 6bp over mid-swaps, the tight end of the 8bp area initial price thoughts, which equated to a mere 9.65bp over Treasuries.

"They're at the top of the tree and they wanted their deal to reaffirm that," said Paul Eustace, a managing director at TD. "They priced at a zero premium versus their peers, which is fairly unprecedented."

Final demand was in excess of US$4.4bn with 90 investors participating, reflecting the extensive global marketing work the AIIB team had completed since it was awarded its first Triple A rating in 2017.

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