AFRICAN DEVELOPMENT BANK GROUPFINANCIAL PRODUCTS PRESENTATIONSe p te mb e r 2 0 2 0

1THE BANK GROUP

Africa’s Premier Development Finance Institution
The AfDB Group: three constituent institutions, separate legally and financially, with a common goal

African Development Bank (ADB)

African Development Fund (ADF)• Established in 1964
• 81 member countries• Authorized capital: USD 208 billion• Resources raised from capital markets• 0% Risk Weighting under Basel II• Level 1 under Basel III• Concessional financing, established in1972• Financed by 27 State participants and 4
regional donors• Subscription: USD 41 billion• Focus on low income countries• Replenished every 3 years

Board of Governors• Highest decision making body
• Composed of Ministers of Finance andMinisters of Cooperation of the Bank’s
member countries

Nigeria Trust Fund (NTF)••••

Established in 1976 by Nigeria
Targeted at the Bank’s neediercountries
Maturing in 2023
Total resources: USD 242 million

Board of Directors• 20 Executive Directors elected by the Boardof Governors• Oversees the general operations of the Bank

Decisions by bothBoards require two
third majority or 70%
should any member
require so…focused on combating poverty, and improving living conditions on the continent3

Country Classification Framework – CREDIT POLICYThe Bank’s regional member countries
are classified according to the Bank’s
credit policy into 4 categories which
determines which financing window
they can access.

NoPer capita income
above the ADF/IDA
operational cut-off(USD 1,165 for 2018)
for more than 2
consecutive years?

Creditworthy for non-concessional financing?
(In line with the Country Policy and Institutional Assessment - CPIA analysis)No
ADF- Regular and Advanced countries or
Low Income Countries (LICs) eligible to ADF
concessional financing (61% concessionalityfor ADF Regular and 51% for ADFAdvanced)

Yes
Blend countries
Simultaneously eligible for ADB nonconcessional & ADF concessional
financing
ADB-OnlyMiddle Income Countries (MICs) eligible
to non-concessional financing onlyYes

ADF Gap countries
eligible for ADF concessional financing on
blend terms (35% concessionality)

Graduating
Graduating countries are eligible for ADF
resources on blend terms during a 2 to 5year phasing-out period (decreasing
access to ADF resources)

Addressing the diverse financing needs of the continent4

Summary of AfDB Financial Products
1
LENDINGINSTRUMENTS
Providing long-term
debt to public andprivate sectors

2
GUARANTEES
Mitigating the risks
attached toinvestments in Africa

7
AFFILIATEDPARTNERS
Leveraging
partnerships withcatalytic financial
intermediaries- ADF Loan
- Fully Flexible Loan
• Policy-BasedOperations (PBO)• Results-Based
Financing (RBF)- Fixed Spread Loan(FSL)- Partial Risk
Guarantee- Partial Credit
Guarantee- PortfolioGuarantee- Africa 50- Africa Guarantee Fund
- African Export-ImportBank

3
EQUITY
Bringing scarce risk
capital totransformativeprojects

4
RISK MANAGEMENTPRODUCTS
Allowing ourborrowers to hedge
and manage their debt
responsibly- Direct Equity- Subordinated Debt
- Mezzanine Debt
- Other quasi-equity

5- Interest Rate Swaps
including caps andcollars- Cross Currency
Swaps- Commodity Swaps

6

TRADE FINANCE
Bridging the gap intrade financing inAfrica

TECHNICALASSISTANCE FUNDS
Financing thecompletion of feasibility
studies, training andproject preparation- Risk Participation
Agreements (RPAs)- Trade Finance Lines Of
Credit (TFLOC)- Soft Commodity Finance
Facility (SCFF)- Grants- Concessional Loans- Equity in select cases- Reimbursable grants

Menu of Existing Financial
Instruments
5

2

PRIVATE SECTOR LOANSViable enterprises & multinational projects

Fees

Additionality and Development Outcomes• Job creation• Government revenues• Financial return• Foreign currency earnings• Social and environmental safeguards

Lending Rate

Fixed Spread Loan (FSL)

Lending terms

Non-Sovereign Guaranteed Loans

ProjectFinanceLine ofCredit

CorporateLoan

Eligibility

Public Sector Companies of ADB and Blendcountries without a sovereign guarantee; andPrivate Sector Companies in all RMCsMaturity

Up to 15 years

Grace period

Up to 5 years

Currencies

EUR, USD, JPY, ZAR, LCY

Pricing formula

Base rate: Floating (6m Libor/Euribor, 3m Jibar) orFixed (Amortizing swap rate) + risk-based lending
spread/margin based on project risk

Interest RateFeatures

Free option to fix up upon disbursement

Front-end fee

100 bps of loan amount at signature

Commitment Fee

50bps – 100bps of undisbursed amount

Appraisal fee

Determined during appraisal

Supervision fee

As neededPrepayment
premium

Hedge unwinding cost in case of a fixed rate loan +a premium determined in the loan agreement
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Non-Sovereign Guaranteed Loans – LOCAL CURRENCY
RationalProvide long term funding in local currencies
Promote domestic capital market development



Reduce clients foreign exchange risk /overall economic risk
exposure

Funding option 1: Domestic Bond Issuance1

The Bank will issue a local bond to provide the funding for the client.
The Bank is hedged is at has its assets and liabilities aligned in the same currency.
Funding option 2: Synthetic Local Currency Loan (SLCL)2The Bank enters into a hedge contract with a market counterparty that provides theequivalent local currency conversion rate. The Bank’s liability is then completely hedged
against currency and interest rate variations and the client’s exposure in local currency.
Funding option 3: Cross Currency Swap

3

This involves an exchange of notional amount with the swap counterparty at inception
and termination, and subsequent receipts of debt repayments in its preferred currency
based on the swap transaction executed.
Funding option 4: Local Bank Loan

4

The Bank enters into an agreement with a local commercial bank that would provide theclient with the funding, and receives its funding cost from the Bank. The Bank bears thecredit risk of the client.

Lending currencies
The Bank currently has 12 approved African lending
currencies:
South African Rand, Egyptian Pounds, Uganda
Shilling, Nigerian Naira, Kenya Shilling, Zambia
Kwacha, Tanzania Shilling, Ghana Cedi, Botswana
Pula, CEMAC region CFA and WAMU region CFA andRwandan franc (RWF).

ZMW

XAF

EGP

NGN

UGX

KES

BWP

TZS

XOF

GHS

RWF83GUARANTEE PRODUCTS

AfDB Guarantees
Risk Sharing
Crowding InLeverage• Risk perception often leads to an additional risk premium on projects compared toother regions of the world• This skewed perception of risk impacts the cost and volume of commercial financing
and capital investment• Africa has been less successful than other developing regions in attracting private
investment
AfDB Group offers 2 types of guarantees:

Guarantees to protect the beneficiaries against
political risks emanating from the government orits entities: Partial Risk Guarantees (PRGs)

Guarantees to protect the beneficiaries against nonpayment by the Applicant:Partial Credit Guarantees (PCGs)
10

AfDB Guarantees
Purpose of Partial Risk Guarantee (PRG)• Currency Inconvertibility and Non-transferability• Expropriation, Confiscation, Nationalization and Deprivation• Political Force Majeure Risks• Breach of Contract
Beneficiaries• Commercial /private sector sponsors/financiers lending to projects in Africa

Purpose of Partial Credit Guarantee (PCG)

The Bank also
launched an
innovating
collaborative
platform for risk
mitigation called theCo-Guarantee
Platform pooling• Covers a portion of debt service defaults regardless of the cause thus supporting the borrowingof the government or public sector entities in investment operations, as well as private sector
borrowers.
• Can help countries get access to the capital markets

the products of fiveguarantee providers
across Africa into a
one-stop shop.

Beneficiaries

Email: cgp@afdb.org• Private lenders to both private sector clients and/or sovereign clients

11

AfDB Guarantees – THE BENEFITS OF WORKING WITH US
AfDB Group guarantees cover risks that the market is not willing/able to bear or cannot
adequately evaluate

For the Guarantee Applicant,
AfDB Group Guarantees attract
and/or provide access to:

New Sourcesof Financing

Improved
Financingterms

For AfDB, countries and otherstakeholders, AfDB Group
Guarantees allow to:

For the Guarantee Beneficiaries andother project stakeholders, AfDBGroup Guarantees allow to:

Mitigate/sharerisks

Reinforce
government
undertakings

Benefit fromAfDB
safeguards onthe project

Leverageon AfDB
resources

Finance moredevelopment
projects withavailable
resources

AfDB Group guarantees help catalyze commercial
financing in transformative projects in priority sectors
12

AfDB Guarantees – THE TERM SHEET
Partial Credit Guarantee
Lending Window /Terms

Leverage

Partial Risk Guarantee

ADF
Only 25% of theguarantee amount isdeducted from the
Performance Based
Allocation

ADB

ADF

ADB

A PCG will consume samelevel of headroom as anequivalent loan

Only 25% of theguarantee amount isdeducted from the
Performance Based
Allocation

100% loan equivalentrisk capital is assigned toa guarantee

Borrower/Applicant

PublicPublicPrivate

PublicPublicMaturity (yrs)

Up to 40

Up to 25

Up to 15

Up to 40

Up to 25

Guarantee fee

0.75%

0.80%

Lending
margin

0.75%

0.80%

Front-end fee

Up to 1%0.25%

1% or more

0%

0.25%

Standby fee

0.5%

0.25%

0.5% – 1%

0.5%

0.25%
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4EQUITYDirect Equity
Eligibility• Financially viable private companies and financial
intermediaries• Public sector companies that are in the process of
being privatised and regional as well as sub-regional
institutions / companies•Includes Subordinated loans, income participating loans•Convertibles and other hybrid instruments

Ownership Approach & Divestment• Bank’s equity participation not to exceed 25%• Bank will seek board representation in any company
in which it becomes a shareholder.
• Clearly defined exist clause to be exercised uponachievement of objectives

15

Indirect Equity
Private Equity Investments

Size of Fund (USD)

ADB (USD)

South African Infrastructure Fund

221 million

25 million

AIG Infrastructure Fund

400 million

50 million

Pan-African Infrastructure Fund

450 million

50 million

African Infrastructure Fund II500 million

30 million

Argan Infrastructure Fund

200 million

15 million

AfDB currently holds $43.4 billion in assets and a committed portfolio of $1.1 billion in equity investments.

We invest in PE infrastructure funds to diversify our equity investments, target specific regions
and industries and reduce transaction costs.

165

RISK MANAGEMENT PRODUCTS

Risk Management Products (RMPs)
Risk Management Products

 The Bank’s RMPs are financial products which allow clients to transform the financial risk characteristics of theirobligation under a loan or other instrument without renegotiation or amending the terms of the original instrument
 RMPs enable clients to hedge their exposure to market risks, including: interest rate, currency exchange andcommodity price Clients are required to enter into market-based Master Derivatives Agreement with the Bank prior to entering into RMP
transactions

FEES

(1)

Interest rate swaps: fixed rate for floating or vice versa(2)

Cross-Currency Swap: one currency for another (USD to EUR, for example)(3)

Commodity Price Swap: fixed / floating rate cash flows for price ofcommodity or basket of commodities(4)

Interest rate Caps and Collars

Interest rate swap

Currency Swap

Commodity / Index swap

Cap and collar

0.125 %

0.25 %

0.375 %

0.125 %
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6TRADE FINANCE

Trade Finance - RISK PARTICIPATION AGREEMENT (RPA)
AfDB shares credit risk (up to 50% of transaction value) on a portfolio basis with confirming banks (CBs) thathave large and consistent trade finance volumes
TERMS

 AfDB approves CB binds AfDB
through RPA (notransaction approvalrequired)limits for IBs following
CB’s proposals

 Submits monthly report•Bank Cover: Up to 50% of
eligible transaction value orrisk assumed by the RPA Bank,
whichever is lower•Tenor: Maximum tenor of
RPAs is 3.5 years; underlying
transactions limited to nomore than 2 years•RPA Administration Fee typically between 0.1% - 0.2%
of Bank’s earned commission•RPA arrangements with CBs
are by nature unsecured

detailing AfDB exposure

Confirming BankIssuing
Banks
AfDB activity

Exporter

Importer20

Trade Finance - LINES OF CREDIT (TFLOC)

AfDB activity

AfDB provides pre- and post-export
financing through local banks

 AfDB provides
financing; assumes
bank risk, notexporter/importer risk

TERMS

 Submits requisite
documentation onits operations•Tenor: Maximum tenor is 3.5 years; borrowers
can recycle proceeds until final maturity ofTFLOC•

Pricing: based on market practices andincludes a credit spread that reflects theBank’s assessment of the risks, facility ranking,tenor etc.

Local Bank Activity

African Local FI On-lends toexporters/importers Request for pre- or
post-export funding

Exporter/Impor
Exporter/Importer
Exporters/Importers
ter••

Front-end and commitment fees notexceeding 1% are applicable.

•Interest will be paid semi-annually

Security and Collateral: Facility classified as
unsecured senior debt

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Trade Finance – SOFT COMMODITY FINANCE FACILITY (SCFF)AfDB provides input and post-harvest financing through aggregators

AfDB activityTERMS•

Tenor: Maximum tenor is 2 years; on an
exceptional basis, tenor beyond 2 years may
be permitted subject to the approval of theBank’s credit risk committee•

Pricing: Pricing will reflect the transaction risks
and the Bank’s pricing policy for non-sovereign
operations and Front-end and commitment
fees apply•

Security and Collateral: The facility is a seniordebt obligation of borrowing institutions who
may require security from their own clients.
Such security shall be used as risk mitigation
for the Bank’s exposure and may include
commodity and documentary pledges, escrowaccounts with assignment of proceeds, andprivate and sovereign guarantees among
others Submits documentation

 AfDB provides financing,detailing proposedtransaction(s)assumes aggregator risk, notfarmer riskAggregator activity

Commodity Aggregator On-lends to/Pays Buys inputs or sells

farmers

commodities

Farmers

Farmers
Farmers/Purchasingagents22

Other Resources – TRUST FUNDS & SPECIAL FUNDS The Bank is able to supplement its financial products with grants to fund technical assistance to borrowers:
 Objective: (i) Raising the effectiveness of project preparation; (ii) TA aims to foster and sustain RMC efforts increating enabling business environment in order to promote private sector investment and growth Focus Areas: capacity building / training of government officials in project design, preparation and analysis

AfDB Hosted Instruments• African Legal Support Facility

External Funds• Climate Investment Funds (CIF)• Global Environment Facility – AfDB is the implementing agency for Africa• We-Fi

Trust Funds• Zimbabwe Trust Fund
• Kore-Africa Economic Cooperation Fund
• Sustainable Energy Fund for Africa

Providing grants &highly concessionalloans for capacity
building/technicalassistance/analytical
work

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Conclusions & Takeaways
AfDB works with and invests in the private sector to transform Africa••••••

AfDB’s goal is to mobilize resources and blended finance initiatives to close the financing gap for private-sector-led
development of the continent.
The Bank provides a diversified product menu to support Non-Sovereign Operations targeting all sectors, namely
agribusinesses, infrastructure and transportation, financial sector development, energy and industrialization.
Through our sovereign products, the Bank also supports the enabling environment for private sector development by derisking investment and ensuring public sector stakeholders have the capacity to engage in PPP structures
The Bank also leads strategic partnerships with key private sector clients, financial institutions, and commercial banks toprovide a comprehensive support package to private sector clients. The Co-Guarantee Platform is such an example.
The Bank can both innovative and high quality deals to encourage private-sector value-chain development
AfDB focuses on leverage with the objective of catalyzing capital flows, especially commercial lending and private
investment to large scale transactions.

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THANK YOU

Contact:
Structured Finance | Risk Mitigation
FIST2@AFDB.ORG