Niche-Market Bond: World Bank’s A$1.65bn dual-tranche sustainable development bond

IFR Awards 2020
3 min read
Sudip Roy

The biggest hit

The Australian dollar market was more miss than hit for much of the year for international issuers with pricing often not attractive enough.

But that still didn’t prevent the biggest ever deal in the Kangaroo market by a sovereign, supranational or agency borrower when in November the World Bank broke its own record with a A$1.65bn (US$1.2bn) dual-tranche offering, comprising A$1.1bn 5.5-year and A$550m 10-year notes.

The World Bank is no stranger to big deals but the size was even more impressive given the context of a year of limited supply, with this transaction accounting for nearly 20% of total issuance in the Kangaroo market in 2020.

The key to the deal was its timing, coming a few days after the Reserve Bank of Australia extended its sovereign bond-buying programme on November 6. The RBA announced its intention to buy A$100bn of five to 10-year ACGBs over the following six months to lower long-term borrowing costs, a move that led to a flattening of credit curves across Australian dollar debt markets.

“The Kangaroo market has been a challenge this year. They waited and waited and then timed it really well following the QE announcement from the RBA,” said Spencer Dove, managing director, public sector debt capital markets at Nomura.

News around the potential effectiveness of vaccines against Covid-19 was also lifting sentiment generally across financial markets, paving the way for the transaction.

World Bank (Aaa/AAA) decided on a dual-tranche strategy to meet demand from different pockets of investors. In particular, the 10-year note helped rejuvenate the long-end of the market, while both tranches spurred interest from a diverse range of accounts.

“It was a truly global placement,” said Dove.

Asian investors took 49% of the May 2026s and 70% of the November 2030s but there were also good allocations for Australian and European accounts.

And while bank treasuries got just under 50% of each bond, central banks and other official institutions were also well represented, as well as pension funds and asset managers.

The sustainability angle also chimed well with one of the big themes of the year, with ESG issuance in Australia underpinned by a rapidly expanding investor base for socially responsible assets.

Pricing came in line with assets swaps of 20bp area and 34bp area price thoughts, respectively, with the bonds coming marginally back of the issuer’s core benchmark curves. However, the deal was important for diversification purposes.

“The Australian dollar is a strategic market for World Bank,” said Dove.

ANZ, Nomura, RBC Capital MarketsandTD Securities were the leads.

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