AFRICAN DEVELOPMENT BANK ADB/BD/WP/2017/244/Rev.1

11 December 2017

Prepared by: FITR Original: English

Probable Date of Board Presentation

13 December 2017

FOR CONSIDERATION

MEMORANDUM

TO : THE BOARD OF DIRECTORS

FROM : Vincent O. NMEHIELLE

Secretary General

SUBJECT : THE 2018 BORROWING PROGRAMME

REVISED VERSION*

Please find attached for consideration, the Revised version of the above-mentioned

document.

The size of the 2018 borrowing program has been adjusted from UA 6.124

billion to UA 5.616 billion in order to reflect the change of the revised lending

amount from UA 6.5 billion to UA 5.5 billion over the next three years.

Numbers impacted by this change are highlighted in yellow.

Attach.

cc: The President

* Questions on this document should be referred to:

Mrs. H. N’SELE Director/Acting Vice President FITR.0 Extension 2028

Mr. K. WERNER Officer-in-Charge FITR.1 Extension 3050

Mr. B. SILUE Senior Treasury Officer FITR.1 Extension 3289

Mr. S. SIMON Senior Treasury Officer FITR.1 Extension 4368 SCCD:C.H.

AFRICAN DEVELOPMENT BANK

THE 2018 BORROWING PROGRAMME

FITR DEPARTMENT

December 2017

TABLE OF CONTENTS

GLOSSARY ............................................................................................................................... i

EXECUTIVE SUMMARY ..................................................................................................... iii

I. INTRODUCTION ......................................................................................................... 1

II. REVIEW OF 2017 BORROWING ACTIVITIES ........................................................ 2

Market conditions........................................................................................................... 2

Execution of the 2017 borrowing program .................................................................... 3

Cost of funds .................................................................................................................. 9

III. BORROWING PORTFOLIO ........................................................................................ 9

Portfolio composition ..................................................................................................... 9

Maturity profile ............................................................................................................ 10

IV. 2018 BORROWING PROGRAM ............................................................................... 11

Objectives ..................................................................................................................... 11

Size of the borrowing program: key drivers ................................................................ 11

2018 borrowing requirements ...................................................................................... 12

Compliance with the debt limit .................................................................................... 13

Investor relations .......................................................................................................... 13

Funding strategy in 2018 .............................................................................................. 14

V. RECOMMENDATION ............................................................................................... 15

TABLE OF ANNEXES ANNEX 1. 2017 Borrowing Program Implementation (excluding ECP...................................................

as of November 15th 2017 ................................................................................................... I ANNEX 2. Transaction Summary: USD 2.5 billion Global due March 2020 ........................................ IV ANNEX 3. Transaction Summary: USD 2.0 billion Global due Nov. 2022 ........................................... VI ANNEX 4. Transaction Summary: EUR 1 billion benchmark due January 2024 ................................ VII ANNEX 5. Transaction Summary: EUR 500 million Global due Nov. 2024 ....................................... VIII ANNEX 6. Average AfDB funding margin for sovereign loans / Weighted average maturity of........... debt raised........................................................................................................................................... IX ANNEX 7. Borrowing requirement projections as of September 30th 2017 for Q4 2017 to Q4 2021..... ......................................................................................................................................... X ANNEX 8. Supranational borrowing requirements ............................................................................. XI

i

GLOSSARY1

Benchmark bond: A bond that provides a standard proxy against which the performance of a

security can be assessed. Benchmark bonds allow investors to estimate the fair-value of new

bond offerings of a given issuer.

In public domestic capital markets such as Australia (the Australian dollar) or the United

Kingdom (Sterling market) the minimum size of a benchmark bond is 100 million and 250

million (in currency), respectively. On the other hand, for global benchmark bonds (those that

are sold simultaneously in capital markets around the world and typically denominated in USD

or Euro, the minimum benchmark size is usually 1 billion (in currency).

Liquid benchmark bonds are bonds that can be easily bought or sold in the market without

significantly affecting their quoted prices. Larger transaction sizes are preferred by investors

due to the greater availability of two-way prices and to the high level of trading activity from

investment banks.

(African) Currency linked notes: African currency linked notes are debt securities

denominated in the currency of an African country but with all cash-flows (coupon and

principal) settled in another currency (typically USD) at the prevailing spot exchange rate. The

performance of these notes reflects the performance of the African currency of denomination

in the foreign exchange market over the life of the notes.

Euro Commercial Paper (ECP): Euro Commercial Paper is a debt instrument in the form of

a short-term promissory note (with maturities ranging from one day to 365 days) issued by

investment grade issuers (i.e. issuers of bonds whose credit quality ranges from high credit

quality (AAA to AA) to medium credit quality (A to BBB-)). It is one of the most popular

short-term financing instruments in terms of investor distribution, size of market and constant

availability of funds. Corporates and a large number of sovereign and supranational borrowers

are the main issuers in the ECP market and the investor base is largely made up of institutional

investors and central banks.

Global Commercial Paper: A debt instrument in the form of short-term promissory notes that

is issued under a global commercial paper program that may be in the form of Euro Commercial

Paper (ECP) or U.S. Commercial Paper (USCP).

Initial price thoughts (IPT): IPTs are a price discovery mechanism where a starting price for

a primary market bond issue is announced to the market and to which small changes may be

made taking into consideration investors’ reaction to the transaction and before final terms are

set for the deal (i.e., until the reoffer level, the price at which the underwriting syndicate resells

the bonds to investors, is set.

Kangaroo bond: A bond denominated in Australian dollars issued into the Australian dollar

market by foreign issuers and subject to Australian laws and regulations.

Public domestic issue: Public domestic issues are bonds denominated in the currency of the

country in which they are issued. Public domestic issues are subject to the regulatory and

1 Source: Bloomberg, AfDB Treasury department

ii

taxation requirements of the country in which they are issued. For example, the Bank issues

public domestic issues in the Australian dollar, New Zealand dollar markets as well as in the

U.K.’s Sterling market.

Private placement: A private placement is an issue of securities to private investors and as

such, not publicly traded on the open market. Private placements generally involve a limited

number of investors, as opposed to public transactions, which are bought by multiple investors.

They are customized to meet a particular investors (or group of investors’) requirements and

in return provide attractive funding levels for issuers.

Secondary Market: The market in which securities or bonds are traded after they are initially

offered in the primary market to investors.

Swap Rate: The rate of the fixed leg of a swap as determined by a particular market. In an

interest rate swap it is the fixed interest rate exchanged for a benchmark floating rate such as

the 3 month U.S. Dollar Libor rate plus or minus a spread.

Uridashi: A uridashi is a bond issued in the Eurobond market through a public offering and

sold in the secondary market to individual investors in Japan. It is a retail targeted transaction

which usually originates through active marketing of an issuer by Japanese securities houses

through their retail network in Japan.

U.S. Commercial Paper (USCP): A short-term promissory note issued under a U.S.

commercial paper program denominated in U.S. dollars only and having a maturity of not more

than 365 days. The majority of liquidity into this product is sourced from money market funds.

Other investors include investment advisors, insurance companies, banks, bank trusts,

corporations, states, local governments and securities lenders.

iii

EXECUTIVE SUMMARY

This document presents for the approval of the Board of Directors the 2018 borrowing program.

The approval is sought for a maximum of UA 5.616 billion to be raised from the markets plus

an additional envelope of up to the JPY equivalent of USD 500 million (UA 356 million

equivalent) under the Enhanced Private Sector Assistance (EPSA) facility. The objectives of

the proposed program are: (1) to raise cost-effective resources to finance development projects

and programs in regional member countries, in line with the Bank’s 10-year strategy and the

High 5s operational priorities, and (2) to ensure that the Bank has sufficient liquidity to meet

all cash flow requirements over a period of at least 12 months and comply with its liquidity

policy.

The 2017 borrowing program was approved by the Board of Directors on December 14th 2016

for a maximum amount of UA 6.943 billion, plus an additional envelope of USD 500 million

(UA 358 million equivalent) under the EPSA initiative.

As of November 15th 2017, the Bank had raised UA 6.854 billion, 98.7% of the approved

borrowing program amount excluding EPSA, from the capital markets through a variety of

markets, currencies, and instruments.

The key pillars of the Bank’s funding strategy remained issuing large(r) size, liquid global

benchmark transactions and developing access to multiple public domestic markets. Given the

increased size of the Bank’s borrowing program over the past few years, strong efforts continue

to be made to deepen and broaden its investor base through roadshows and targeted meetings,

highlighting the increase profile of the Bank in the continent and the strength of its financial

position.

The Bank continued to explore the prospects for local currency bond issues in African domestic

markets. Such issues are designed to facilitate the financing of operations in local currency and

to promote the development of domestic bond markets across the continent.

Management continues to ensure that the Bank’s funding remains in compliance with its

liquidity policy and debt limits at all times.

1

I. INTRODUCTION

1.1. The African Development Bank provides financial assistance to its member countries

by mobilizing resources primarily from the capital markets under its annual borrowing

program. As required by the Financial Regulations, the Board of Directors examines

and approves the Borrowing Program annually, formally establishing the ceiling for

new debt issuance. The Borrowing Program document determines the maximum

amount of funding to be raised, within the Bank’s asset and liability management

framework, to support the implementation of the Bank’s business plan for the coming

year.

1.2. The Bank’s rating remains one of the key determinants of the cost at which funding can

be mobilized in the financial markets, as well as providing the best possible stepping

stone to access capital markets in times of distress. The credit rating agencies Fitch,

Japan Credit Rating Agency, Moody’s, and Standard & Poor’s (S&P) have all

reaffirmed the AAA rating of the Bank’s long term senior debt, and AA+ rating of its

subordinated debt. The outlook on the ratings remains stable, reflecting the Bank’s

sound capital adequacy and liquidity position, prudent financial and risk management

policies, strong shareholder support, and diversified wholesale funding profile.

1.3. Notwithstanding, some rating agencies have highlighted that the Bank is facing certain

pressure points, which, if not addressed, could put the AAA rating at risk2.

1.4. Following this introduction, section II reviews the Bank’s borrowing activities in 2017,

section III describes its outstanding borrowing portfolio, section IV presents the

proposed 2018 borrowing program and the associated borrowing strategy, and finally,

section V summarizes Management’s conclusions and its recommendation to the Board

of Directors.

2 ADB/BD/IF/2017/164/Rev.1 Summary report on the Bank’s 2017 credit ratings

2

II. REVIEW OF THE BANK’S 2017 BORROWING ACTIVITIES

Market conditions

2.1. 2017 has been generally benign in global capital markets with volatility being muted

and low compared to recent years. Interest rates have remained low and generally traded

range bound. As shown on Chart 1, the 10 year U.S. Treasury bond has moved within

a 62 bps range, while the 10 year Bund (Germany’s government bond) range was less

than 50 bps.

Chart 1: Annual ranges in 10 year Treasury and Bund yields, 2017 is YTD; 2001-17

Source: Wells Fargo Securities, Bloomberg L.P.

2.2. A shift in central bank policy may be the biggest factor impacting global markets going

forward. When the year began, the Federal Reserve Bank stood as the lone major central

bank in tightening mode. However, the ECB having tapered its asset purchase program

once, announced additional tapering in October this year down to EUR 30 billion per

month starting January 20183. The Bank of England boosted its Bank Rate4 for the first

time in a decade at the start of November and the Bank of Canada raised its policy rate

in July and again in September.

2.3. China's central bank surprised financial markets in February by raising short-term

interest rates, in a further sign of a tightening policy, as the economy shows signs of

steadying. While the rate increases were modest, they reinforced views that Chinese

authorities were focusing on containing capital outflows and in reining-in risks to the

financial system created by years of debt-fuelled stimulus. It was the first time since

July 2011 it has raised one of its key policy interest rates. Only the Bank of Japan still

seems fully committed to accommodative monetary policy, as it continues targeting a

10 year yield on Japanese Government bonds that is very near zero.

2.4. From a Supra, Sovereign, and Agency (SSA) perspective, the USD market has remained

constructive with a gradual tightening of spreads both versus swaps and treasuries. In

3 When the year began, the ECB was buying EUR 80 billion per month. 4 The official Bank Rate (also called the Bank of England base rate or BOEBR) is the interest rate that the Bank of

England charges Banks for secured overnight lending. It is the British Government's key interest rate for enacting monetary policy.

3

fact, valuations of the core SSA market (including the Bank and its peers), are near

historically tight levels versus treasuries. This reflected two important factors:

First, the interest rate outlook in the dollar market is now a lot more stable and has

given investors the confidence to both increase their SSA holdings and go further

down the curve, buying longer dated SSA bonds;

Second, reduced issuance from the US Government Sponsored Enterprises (GSE)5

sector has led to a greater focus from bank treasuries and global asset managers

on the SSA sector, as its strong credit fundamentals and increasingly good

liquidity make it a perfect substitute for their GSE investments. Beyond the typical

central bank buyer base, these new investors are now playing an increasingly

important role in SSA issues, in particular in the mid and long part of the curve.

2.5. The EUR market continued to benefit from strong ECB support and, in particular, from

the Public Sector Purchase Programme (PSPP)6 bid. Nevertheless, the lack of supply

and bonds available for purchase in the secondary market, made conditions very

conducive for new bond issues, in particular in the mid – long part of the curve.

2.6. The Sterling market saw some volatility during the year given the ongoing Brexit

negotiations. Nonetheless, there were moments where conditions were perfectly aligned

for SSA issuance, in particular during the first quarter of the year, during which many

issuers, including the Bank, accessed the market.

2.7. The continuation of quantitative easing policies in Japan continued to incentivize

domestic investors into buying G7 government bonds (in particular USD government

bonds), as well as private placements and uridashis. SSAs, including the Bank,

continued to provide a good conduit for these investors.

Execution of the 2017 borrowing program

2.8. The borrowing program for the year 2017 was approved by the Board of Directions on

14th December 2016 for a maximum amount of UA 6.943 billion, plus an additional

envelope of up to the JPY equivalent of USD 500 million (UA 358 million) under the

Enhanced Private Sector Assistance (EPSA) Initiative for Africa. During the year, the

Bank maintained its presence across most major international capital markets, and as of

15th November 2017, a total of UA 6.854 billion (98.7% of the approved amount) has

been raised through a variety of markets, currencies and instruments.

2.9. The US dollar global benchmark market has long been the bulwark of the Bank’s

funding strategy and continues to offer the most reliable source of funding.

Notwithstanding market volatility, the Bank continues to attract strong investor interest,

especially from central banks and official institutions with the Bank’s bonds offering

safe-haven status as well as good performance on secondary markets. The Bank remains

committed to execute sustainable bonds, backed by (1) climate-smart and low carbon

investments on the continent that produce visible and sustainable outcomes, and (2)

5 Government-sponsored enterprises (GSE) are financial services corporations created by the United States Congress. Their intended function

is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and

transparent, and to reduce the risk to investors and other suppliers of capital. Examples include Fannie Mae and Freddie Mac. 6 An ECB program that began in March 2015 that involved the purchase of public sector assets such as government bonds and debt

securities of European institutions and agencies. Purchasing large volumes of bonds tends to push up bond prices and lower yields which in

turn influences the general level of market interest rates.

4

projects with very strong social outcomes. It is in this context that the Bank launched

its green bond program in 2013, targeting socially responsible investors (SRI) across

the globe who wanted to make a difference with their investments by helping to finance

climate change solutions in Africa, and successfully designed and rolled out its Social

Bond framework this year.

2.10. The ability to lend in local currencies is important for the Bank to remain a relevant and

responsive development partner to its clients. Work with government authorities and

regulators to secure requisite waivers and approvals to issue in additional local

currencies designated as lending currencies7 is ongoing. Table 1 presents a summary of

the transactions executed in 2017, as of 15th November, by instrument and on an

aggregate basis, and Annex 1 provides details on each individual transaction.

Table 1: Borrowing activities in 2017 by instrument

As of 15th November 2017

Instruments

Amount Average cost of borrowing

Weighted

average

maturity Number

of trades In UA

million In % vs. reference rate* In years

USD/EUR global

benchmarks 4,609 67.2%

71.2% at 6mth$L – 1.55 bps

28.8% at 6mthE – 3.83 bps 4.8 5

Public domestic issues 721 10.5% 36.8% at 6mth$L + 16.19 bps

63.2% at 6mthE – 14.25 bps 7.9 23

Private placements 1,368 20.0%

87.5% at 6mth$L – 4.34 bps

5.7% at 6mthE – 57.00 bps

6.6% at 6mth£ – 30.00 bps

0.2% at 3mthJ + 45.00 bps

6.2 65

Uridashis 113 1.7% 99.3% at 6mth$L – 5.82 bps

0.7% at 3mthJ + 30.00 bps 9.1 57

African currency linked

notes 43 0.6% 6mth$L - 3.52bps 4.8 4

Total 6,854 100% 5.45 154

USD Global benchmarks

2.11. Following the increase of the borrowing program in the last quarter of 2016 (from USD

8.3 billion to a maximum of USD 11.2 billion - the highest borrowing program in the

history of the institution), some investors were starting to get “full” on their AfDB lines.

This slightly impacted the performance of the Bank’s bond issues in secondary markets,

with trading levels at times being an additional 4 to 6 basis points (0.04% to 0.06%)

wider than those of the Bank’s immediate peers. Another consequence was a reduction

in the level of oversubscription in our USD 1 billion primary issues, compared to what

had been the trend in recent years.

2.12. To address these issues, the Bank intensified its investor marketing efforts, while

continuing to sharply monitor the performance of the Bank’s bond issues in secondary

7 CFA Franc for the West African (XOF) and Central African (XAF) zones, Ghanaian Cedi (GHS), Tanzanian Shilling (TZS), and Zambian

Kwacha (ZMW).

5

markets. It became imperative to change strategy and move away from the usual USD

1 billion maximum sized transactions to larger bond issues. The aim was to start

establishing the AfDB as a regular issuer of large, liquid, benchmark transactions, to

attract a newer set of investors focused on liquidity, and create rarity value for the

Bank’s issues. To widen and deepen the Bank’s investor base, and further improve its

secondary performance, global benchmarks would be sized between USD 1.5 billion to

USD 2.5 billion, and “pay up” 2 basis points for liquidity. This strategy has proven to

be a success.

2.13. The launching in March 2017 of a 3-year USD 2.5 billion global bond, the largest

benchmark ever executed by the Bank, represents a clear step-up in issuing profile,

positioning the AfDB within the restricted group of issuers of large, liquid global

benchmark transactions. The deal attracted USD 3.8 billion in orders, 88 investors of

which 13 had never bought AfDB bonds. This landmark transaction helped reprice the

full secondary market curve of the AfDB to a tighter level versus its peers (See Annex

2).

2.14. This landmark issue was followed in November by a successful USD 2 billion 5-year

transaction, the largest bond issue ever executed by the Bank in that maturity. These

longer dated transactions hinge on securing stronger participation from Bank Treasuries

and Asset Managers, an investor base that the Bank has been gradually building through

targeted marketing efforts. Nonetheless, and in spite of competing issuances, the Bank,

with a USD 2.35 billion order book, executed a USD 2 billion bond transaction at a

level of MS-12 bps. The transaction reinforced the Bank’s position as an issuer of larger

sized benchmark transactions, fostering investor confidence in the liquidity of its

transactions and helping develop its investor base (See Annex 3).

Euro Global benchmark

2.15. The Euro market offers both diversification from US dollars and longer maturities for

the Bank’s issuances. Following the successful inaugural Euro 750 million benchmark

10-year transaction executed in October 2016, and in line with its strategy of

establishing itself as a regular issuer in the Euro market, the Bank executed a Euro 1

billion global benchmark, carrying a 7-year maturity. This transaction added another

liquid point to the Bank’s curve in the Euro market, and attracted new high quality

profile Euro-focused investors (See Annex 4).

2.16. Spreads from eligible PSPP SSAs continued to trade tight and even compress versus

German and French Government Benchmark Bonds, with non-PSPP issuers (like the

AfDB), having to pay a premium over these issuers. The Bank’s solid credit

fundamentals paired with proactive investor work and well executed performing bonds

will help us get an even stronger momentum over time to draw higher investor interest

and even tighter pricing.

Inaugural Social Bond

2.17. The market for a bond offering aimed at financing ‘projects with a social dimension has

emerged and deepened in the past few years. The Bank is uniquely suited to access this

market given its social mandate and the High 5 operational priorities. This market is

supported by a growing number of investors who have incorporated Environmental,

6

Social and Governance (ESG) standards into their investment decisions. Given the

Bank’s commitment and track record of supporting social issues in all manner, it was a

natural progression that the Bank would launch its Social Bond program, targeted at

Socially Responsible Investors (SRI).

2.18. The Bank designed and established a Social Bond framework, which was rated ‘Robust

and Credible’ by Sustainalytics8, a ratings agency that evaluated the Bank’s approach

to social financing. It is in this context that the Bank launched and priced its inaugural

EUR 500 million 7-year Social Bond transaction on 14 November 2017. The

transaction was preceded by extensive meetings with socially responsible investors and

the completion of a dedicated Social Bond webpage providing the Social Bond

framework, the Sustainalytics Second Opinion and relevant social policies, rules and

procedures for investors.

2.19. The proceeds of the Social Bond support projects aligned with the Bank’s 10-year

strategy and High 5s with a focus on the financing of affordable basic infrastructure,

access to essential services, affordable housing, employment generation, food security

and socio-economic advancement and empowerment. The targeted African populations

include those living below the poverty line, excluded or marginalized populations,

vulnerable groups, people with disabilities, migrants, undereducated and the

unemployed. The transaction was three times oversubscribed in 150 minutes, with 69

investors participating of which a record amount of 19 were new to the Bank. (See

Annex 5 for further details of the transaction).

Public domestic issues

2.20. The Australian dollar market was in strong shape throughout most of the year, and the

Bank took advantage of the many opportunities presented to issue two new lines and

execute a record twenty taps in three different maturities, including one line being

increased 14 times. Total issuance in this market (AUD 890 million, equivalent to UA

486 million) more than doubled the amount raised in 2016. Total outstanding bonds

amounts to AUD 4.375 billion spread across eleven maturities up to 2031.

2.21. In September 2017, AfDB sold its first “Industrialize Africa” theme Bond to Fukoku

Mutual Life, one of Japan’s largest insurance companies. The transaction was a AUD

50 million 10-year private placement. The investor indicated that the bond could offer

attractive returns on their policy holders’ funds while achieving a positive social impact

in African countries. Following this inaugural transaction, a press release was published

and tombstones were offered to AfDB and Fukoku Life, at the investor’s request, and

in the presence of Fukoku Life’s CEO during an award ceremony organized in Tokyo.

2.22. During the year, the Bank also returned to the Sterling market with a new 5-year

(December 2021) GBP 250 million (UA 228 million), and increased the size of one of

its green bond transactions.

2.23. Other domestic markets, including the Canadian dollar, offshore Chinese renminbi,

Hong Kong dollar, Japanese yen, New Zealand dollar, Norwegian krone, Singapore

dollar, South African rand, Swedish krona and Swiss franc were continuously being

8 Sustainalytics is a global leader in ESG and Corporate Governance research and ratings.

7

monitored. However, there were limited opportunities to issue at attractive levels, and

therefore no transactions were executed.

Private placements

2.24. Private placement transactions can be either plain vanilla9 or structured10 securities sold

directly to investors, rather than through public market offerings. They are customized

to meet investors’ requirements and, in return, are priced at comparatively more

attractive funding levels than those available in the public market. Transactions are

usually name-specific11.

2.25. Appetite for private placement transactions was strong for high grade issuers through

the first three quarters of the year. A total of UA 1.4 billion has been raised in various

currencies including Japanese yen, Brazilian real, Swedish krona, South African rand

and other emerging market currencies.

2.26. The Bank continued to meet increased demand from Japanese investors for themed

bonds. This demand reflects investors’ preferences for investing their savings in bonds

that finance social projects and that meet their investment risk / return preferences. The

Bank issued 17 theme bonds aligned with the High 5’s operational priorities, including

15 “Improve the Quality of Life for the People of Africa” bonds, as well as an inaugural

“Light Up and Power Africa”, for a combined total of UA 81 million.

Uridashis

2.27. Given the persistently low interest rate environment, Japanese retail investors have

favoured uridashi bonds denominated in high yielding currencies and highly structured

transactions denominated in yen. Issuance volumes and number of trades have

increased substantially year-on-year as the Bank is competitive when it comes to the

currencies it can issue and is also able to respond to the increased interest in theme

bonds. The Bank issued a record number of uridashis (58), denominated in currencies

such as the Brazilian real, South African rand, Indonesian rupiah and Indian rupee (for

the first time) totalling UA 112 million.

African currency markets

2.28. The Bank continues to promote the development of African capital markets. However,

the current macroeconomic, fiscal and political environment in some countries clouds

the medium term prospect of their currencies, which sometimes deters international

investors from purchasing African currency linked structures.

2.29. African currency linked issuance in 2017 was fairly limited due to continuous foreign

exchange rate depreciation experienced by popular African currencies. Having said

this, the Bank was able to issue transactions in both Nigerian naira and Botswana pula

for a total amount of UA 43 million, and continues to monitor the market for follow up

interest for subsequent trades.

9 The most basic version of a financial instrument typically refers to a fixed rate bond with redemption at maturity. 10 The opposite of a plain vanilla i.e. they contain additional components which add to the complexity of the security. Common structures

include embedded call options, coupons linked to complex foreign exchange rates, interest rates and formulas etc. 11 Investors request dealers to source transactions from a specific institution.

8

2.30. The ability to lend in local currency is important for the Bank to remain a relevant and

responsive development partner to its clients. During the year, the Bank worked on

domestic issuance opportunities denominated in Botswana pula (BWP), Zambia

kwacha (ZMW) and Nigeria naira (NGN), doing preparatory work to eventually

provide local currency funding to projects in these countries. The launch of these deals

will be timed to the disbursement under the respective projects. Proceeds of the ZMW

issue should be used for Lines of Credit, while the NGN issue should be directed to

finance an education project (university). Furthermore, the Bank continues to work with

government authorities and regulators in the Central African zone to secure mandatory

waivers and approvals in order to issue in local currency (XAF).

2.31. The Bank has had further discussions with the West African Economic and Monetary

Union (UEMOA) regulator to enhance its access to the XOF market, and has reinitiated

the dialogue with the Mozambique authorities to obtain consent and necessary waivers

to be able to issue in the local market and ultimately propose the Mozambique metical

as a lending currency of the Bank.

2.32. The Bank will also consider meeting its local currency requirements by borrowings

from commercial banks located in regional member countries, and as long as these

transactions make sense from a cost perspective.

EPSA initiative12

2.33. The seventh non-sovereign loan (NSL) from the Japanese International Cooperation

Agency (JICA), amounting to JPY 34.4 billion (approximately USD 309 million or UA

221 million), was successfully drawn down this year on 1st August 2017.

Euro Commercial Paper (ECP) program

2.34. ECP issuance allows the Bank to broaden its investor base while bringing more

flexibility to its liquidity management activities. The flexibility of the program allows

for a quick response to spikes in cash flow requirements, including unexpected

disbursement requests which may arise late in the year when debt capital markets are

traditionally less active and issuing large benchmark transactions would be more

challenging. It should be noted that the ECP program is used for short-term liquidity

management purposes and is not part of the annual borrowing program authorization.

It should be noted that the existing ECP program may be amended or appended to

incorporate capacity to allow for participation of USCP investors for the purposes of

investor diversification and potential cost savings. For that reason, the Bank is in the

process of considering the advantages of adding a US commercial paper (USCP)

program or converting to a Global Commercial Paper program.

2.35. As of 15th November 2017, 11 ECP transactions have been issued for a total amount of

USD 1,060 million equivalent (UA 750 million) with an amount outstanding of USD

200 million (UA 142 million) maturing within 2017. The maturities of these

transactions ranged from 32 days to 176 days.

12 EPSA is multi-component framework for resource mobilization and partnership with the Government of Japan to support implementation

of the Bank’s Private Sector Development Strategy, launched in 2005. The three principal components are (i) Accelerated Co-financing Facility for Africa (ACFA); (ii) EPSA Loans for Non-Sovereign Operations (NSL) and (iii) Fund for African Private Sector Assistance

(FAPA). The Non-Sovereign Loan (NSL) component helps finance the Bank’s private sector operations through credit lines from JICA to the

Bank

9

Cost of funds

2.36. All borrowing transactions executed as of 15th November 2017 were swapped into

floating interest rate basis, in line with the Bank’s ALM guidelines. The after swap

weighted average cost of funds is presented in Table 2.

Table 2: Cost of funds*

Currency

2017 (as of 15th November 2017) 2016

Amount

Cost of funds

raised during the

year

Amount Cost of funds raised

during the year

USD UA 4,901 million 6mth USD Libor –

1.4 bps UA 5,320 million

6m USD Libor – 0.4

bps

EUR UA 1,859 million 6mth Euribor – 8.6

bps UA 1,954 million

6m Euribor – 17.9

bps

JPY - - UA 0.6 million 6m Yen Libor -36 bps

GBP UA 90 million 6m GPB Libor – 30

bps N/A N/A

ZAR UA 4 million 3mth Jibar + 41.9

bps UA 92.4 million 3m Jibar + 43.4 bps

*Note: EPSA not included.

2.37. As of 15th November 2017, the Bank had executed 98.7% of this year’s borrowing

programme, successfully raising cost-effective resources across a variety of markets

and through the whole maturity spectrum, while simultaneously meeting its asset and

liability constraints. (Annex 6 presents the evolution of the Bank’s funding margin since

2008).

2.38. The weighted average maturity of funds raised from the debt capital markets as of 15th

November 2017 is 5.45 years (versus 4.1 years for 2016), reflecting the Bank’s strategy

to extend the maturity of its funding (See Annex 6).

III. BORROWING PORTFOLIO

Portfolio composition

3.1 The borrowing portfolio stood at UA 23.2 billion13 as of 30th September 2017 (vs. UA

21.5 billion as of 31st December 2016) and its composition by instrument is shown in

Chart 2.

13 Excluding ECP.

10

Chart 2: Composition of the borrowing portfolio by instrument

3.2 Chart 3 presents the currency composition of the outstanding borrowing portfolio

before swap as of 30th September 2017.

Chart 3: Composition of the borrowing portfolio by currency of issuance

3.3 The U.S. Global Benchmark market continues to be the cornerstone of the Bank’s

borrowing programme, and hence reflects heavily in the currency split of the

outstanding borrowing portfolio, as shown in Chart 3. AUD remains the second funding

currency of the Bank while EUR is gaining in importance having grown from less than

1% in 2015 to 5.7% in 2016 and 9.5% in 2017.

Maturity profile

3.4 In order to mitigate refinancing risk, the Bank remains focused on laddering the liability

portfolio structure, thus ensuring that bond redemptions in a single year do not amount

to more than 25% of total outstanding borrowings. The Bank is in compliance with this

limit as shown on Chart 4, a chart that depicts the maturity profile of the Bank’s

outstanding borrowings as of 30th September 2017.

0,1%

0,6%

1.6%

2,0%

4,4%

15,1%

27,0%

49,2%

African domestic bond

African currency linked note

ECP

Uridashi

Loan

Public domestic bond

Private placement

Global benchmark

0% 10% 20% 30% 40% 50% 60%

0,1%

0,1%

0,1%

0,2%

0,3%

0,4%

0.4%

0,6%

0,8%

1,1%

1,1%

1,5%

1,6%

2,9%

3,1%

6,4%

9,5%

11,2%

58,6%

Others

INR

IDR

GHS

NGN

AED

NZD

TRY

RUB

MXN

CHF

SEK

BRL

ZAR

GBP

JPY

EUR

AUD

USD

0% 10% 20% 30% 40% 50% 60% 70%

11

Chart 4: Maturity profile of outstanding borrowings

* 25% of outstanding borrowings as at September 30, 2017.

Note: Assumption is that callable bonds will be called on the date of the next call date.

IV. 2018 BORROWING PROGRAM

Objectives

4.1 The central objectives of the Bank’s borrowing program for 2018 will continue to be:

(1) to raise cost-effective resources to finance development projects and programs in

regional member countries, in line with the Bank’s 10-year strategy and the High 5

operational priorities, and (2) to ensure the Bank has sufficient liquidity to meet all cash

flow requirements over a period of at least 12 months and comply with its liquidity

policy and other key rating agency metrics.

Size of the borrowing program: key drivers

4.2 The size of the Bank’s borrowing program is derived from the liquidity policy and cash-

flow needs over a given projection horizon. The Bank’s requirement is that liquidity

should cover net cash-flow needs projected for a one-year rolling period in order to

protect the institution in the event of a temporary loss of access to capital markets and/or

other sources of funding. To meet this objective, liquid assets are maintained at or above

a prudential minimum liquidity level (PML) at all times. The PML is reviewed quarterly

and computed as the sum of the following components:

One year debt service requirements;

One year expected net loan disbursements;

Undisbursed equity commitments;

Loan equivalent value of signed guarantees;

12

2018 borrowing requirements

4.3 Table 3 presents the projected quarterly PML for 2018 and the fourth quarters of 2019

and 2020, as of 30th September 2017. The increase in PML for 2018 is due to an

increase in both debt redemptions and disbursements.

Table 3: Prudential minimum liquidity

(in UA

million) 2018 2019 2020

Q1 Q2 Q3 Q4 Q4 Q4

PML 8,320 7,057 7,658 8,377 7,584 7,303

4.4 The computation of the borrowing program amount is based on a three-year rolling

average of annual borrowing requirements, which is derived from projections of the

Bank’s activity in upcoming years. This approach avoids large yearly swings in the

Bank’s borrowing requirements, allows for a more constant presence in the capital

markets and for a smoother and more cost-effective execution of the borrowing

program. Accordingly, the borrowing amounts necessary to comply with the PML

constraint are computed for 2018, 2019 and 2020, and an annual average is derived for

the period. The expected amount of funding required from the capital markets to comply

with the PML limit is presented in Table 4.

Table 4: Annual borrowing requirements based on the PML

(in UA million) 2018 2019 2020

3-year average

or 2018 total, if

higher

Expected funding needs 5,018 5,769 6,061 5,616

4.5 The borrowing program size for 2018 is set at the 3-year average of UA 5.616 billion.

The detailed cash flow projections up to 2021, together with liquidity and borrowing

requirements, are provided in Annex 7. These are taken from the Bank’s indicative

long-term financial projections and assume loan disbursements of UA 3.364 billion in

2018, UA 3.626 billion in 2019 and UA 3.942 billion in 2020.

EPSA initiative

4.6 Discussions will commence in 2018 for the eighth non-sovereign loan of up to a

combined JPY equivalent of USD 500 million (approximately UA 356 million). This

loan could be drawn-down in 2018. It is therefore prudent to request an enabling

approval from the Board of Directors for a drawdown of up to the JPY equivalent of

USD 500 million under the EPSA facility for 2018, subject to successful negotiations

with the Bank’s Japanese partners.

13

Borrowing program envelope

4.7 In summary, Management proposes a borrowing program amount for 2018 of UA 5.616

billion to be raised from the debt capital markets plus an additional envelope of up to

the JPY equivalent of USD 500 million (UA 356 million) under the EPSA facility14.

Annex 8 presents the current estimates of the 2018 funding needs from selected

supranational peers that helps better contextualize the Bank’s 2018 borrowing

requirements.

Compliance with the debt limit

4.8 The Debt to Usable Capital15 ratio is the prudential leverage ratio which limits the

Bank’s outstanding debt to its usable capital. Table 5 presents the impact of the

proposed 2018 borrowing program on this ratio.

Table 5: Impact on the debt to usable capital ratio* (FIFM)

(Amounts in UA

million) Limit

December 31st

2016

December 31st

2017

(estimate)

December 31st

2018

(estimate)

December 31st

2019

(estimate)

Total Debt 20,644 23,838 24,038 25,063

Usable Capital 28,213 28,622 29,189 29,545

Debt to Usable

Capital 100% 73% 83% 82% 85%

Headroom for

new debt

7,569 4,784 5,151 4,482

*Source: FIFM, using data in the Quarterly Liquidity Risk Report for 3Q2017

4.9 Management will continue to ensure that the Bank remains in compliance with the

Bank’s debt limit of 100% at all times. Management will also continue to monitor other

liquidity and leverage ratios that the rating agencies observe to ensure that we are in

compliance.

Investor relations

4.10 The Bank's funding requirements necessitate a continued dialogue with both arranging

banks and investors and remains an essential pillar of the borrowing strategy, and this

approach should prove extremely valuable if market conditions deteriorate. This pro-

active approach to investor relations has been effective in educating investors on the

Bank’s financial strengths and operating environment, and as a result the Bank has been

able to successfully add new investors over recent years. It is thus of paramount

importance to continue to actively engage with investors in order to deepen and broaden

the Bank’s investor base.

14 The Government of Japan determines the EPSA loan amount as the JPY equivalent of USD 500 million. Hence, due to FX fluctuations,

the EPSA envelope requested is indicated in USD instead of UA. 15 Usable capital is the callable capital of non-borrowing member countries rated A- or better + Reserves net of Cumulative Currency

Translation Adjustment (CCTA) + Paid-in capital net of Cumulative Exchange Adjustment on Subscriptions (CEAS).

14

4.11 The Bank will continue to cultivate key investor groups including its traditional central

bank and official institution investors, but will have a greater focus going forward on

asset managers, bank treasuries, US state treasuries and municipalities, as well as

socially responsible investors, as they are the key drivers for successful issuance of

longer dated bonds.

4.12 To this effect in January 2017, the Bank held its eighth annual dealer event in London

to update the investment banking community on its borrowing requirements for the year

and recent operational and strategic highlights.

Funding strategy in 2018

4.13 The Bank’s strategy for achieving its funding goals will continue to be based on the

following building blocks:

Establishing a track record of issuing regular, liquid benchmark transactions in

global and large domestic capital markets, which in turn help generate private

placement and uridashi opportunities priced at competitive funding levels.

Develop access to public and private markets in various currencies and build

name recognition as well as market the Bank’s High 5 priorities through theme

bonds to kindle investor interest.

Access medium to long-term funding, subject to market conditions.

Deepen and broaden the Bank’s investor base.

Promote the development of African capital markets and provide local currency

funding to its clients by issuing bonds denominated in local currencies.

USD and EUR global benchmarks

4.14 The Bank will continue to maintain a consistent presence and build its benchmark

curves in these two core markets, while remaining faithful to its strategy of issuing

fewer, but larger liquid benchmark transactions in order to create rarity value. This

strategy, which has proven to be quite effective in the outgoing year, will continue to:

(1) increase the Bank’s visibility in the market, (2) provide transparent pricing

references for investors and (3) create competitive funding opportunities in other

domestic public markets and private placements.

Public domestic issues

4.15 The main strategic attractions of public domestic markets are: (1) the ability to diversify

the Bank’s investor base, (2) raise smaller amounts of benchmark funding (typically

USD 100-500 million equivalent depending on the currency), and (3) attractive funding

costs in various maturities. Issuance in domestic markets will continue to be primarily

driven by the ability to price at levels commensurate with those of the Bank’s peers and

the ability to swap the proceeds into the Bank’s main disbursement currencies at cost-

effective levels.

4.16 The Chinese renminbi was officially included in the International Monetary Funds

(IMF) Standard Drawing Rights (SDR) basket October 1st 2016. The Bank has

undertaken exploratory work towards a debut SDR bond (Mulan) and is anticipating a

planned issuance in H1 2018, contingent of course on cost-effective concerns and

15

market conditions. The advantages of an SDR bond include, for certain investors,

providing diversification benefits through the portfolio of currencies effect, while, for

the Bank, the advantage of being one of the few global issuers in this new format allows

access to China (seen as of great strategic importance) or SDR focused investors.

4.17 In addition, the Bank is looking to issue Renminbi (RMB) bonds in parallel in the

onshore market, where the bond would be targeted to Chinese investors.

African currency markets

4.18 Issuance of African currency-linked bonds targeted at offshore investors will continue

to be pursued. The execution of such trades however remains driven by risk sentiment

in the market and fundamentals of African countries.

4.19 In terms of onshore issuance, the Bank will continue to explore opportunities in the

domestic markets of its member countries and its approach will remain dynamic and

responsive to specific demands of its clients for local currency denominated loans. The

Bank expects to issue its maiden bonds in Zambian kwacha, Botswana pula and West

African CFA franc in 2018, and re-issue in Uganda and Nigeria to respond to local

currency needs from its clients.

V. RECOMMENDATION

5.1 The Board is invited to:

Approve the 2018 borrowing program for a maximum amount of up to UA

5.616 billion to be raised from the markets plus an additional envelope of up to

the JPY equivalent of USD 500 million (UA 356 million) under the Enhanced

Private Sector Assistance facility for Africa Initiative;

Take note of the Bank’s 2018 funding strategy.

I

ANNEX 1. 2017 Borrowing Program Implementation (excluding ECP) As of November 15th 2017 Description Maturity date Amount (UA) Swap level (bps)

Global benchmark market

EUR 1.15 billion benchmark due Jan-24 24-Jan-2024 905,591,489 6M EURIBOR -0.55

EUR 500 million Social Bond due Nov-24 21-Nov-2024 419,413,827 6M EURIBOR -11

USD 2.5 billion Global benchmark due Mar-20 16-Mar-2020 1,856,610,275 USD 6M LIBOR -5.9

USD 2 billion Global Benchmark due Nov-22 16-Nov-2020 1,426,686,165 USD 6M LIBOR 4.1

Public domestic markets

AUD 25 million Kangaroo due June 2026_Tap 8 02-Jun-2026 13,506,724 6M EURIBOR -18

GBP 250 million, 4.9yr benchmark UKT+36 due Dec 2021 20-Dec-2021 227,039,496 6M EURIBOR -16.55

AUD 150 million Kangaroo due March 2022, Tap 5 23-Mar-2022 84,412,405 6M EURIBOR -15.5

AUD 25 million Kangaroo due January 2025_Tap9 10-Jan-2025 13,447,946 USD 6M LIBOR 15.5

AUD 185 million transactions due July-2027 27-Jul-2027 103,120,835 6M EURIBOR -7.6

AUD 335 million transactions due July-2027 27-Jul-2027 186,180,985 USD 6M LIBOR 16.1

AUD 50 million, due September 2027 - " Industrialise Africa " 27-Sep-2027 27,850,188 6M EURIBOR -14.5

AUD 60 million due September 2027 - '' Industrialise Africa ''- Taps 27-Sep-2027 33,006,046 USD 6M LIBOR 15.0

AUD 60 million Green Bond Kangaroo due December 2031_Tap 1 15-Dec-2031 32,774,528 USD 6M LIBOR 18

Private placement transactions

EUR 100m 7yr NC1 Fixed Rate Callable EMTN 16-Jan-2024 78,078,031 6M EURIBOR -57

AED 500 million 1.350% Fixed Rate Notes due August 2018 01-Aug-2018 100,207,028 USD 6M LIBOR -23

USD 85.68 million Fixed Rate Note 1.61% due March 15th 2019 15-Mar-2019 63,619,353 USD 6M LIBOR -21

TRY 50 million - Fixed Rate Note due May 2019 08-May-2019 10,191,973 USD 6M LIBOR -28

USD 23.5 million Fixed Rate Note 1.73% due August 15th 2019 15-Aug-2019 17,449,286 USD 6M LIBOR -20

USD 16.99 million Fixed Rate Note 1.760% due November 1st 2019 01-Nov-2019 12,615,462 USD 6M LIBOR -22

GBP 100 million due 1 February 2020 01-Feb-2020 90,146,127 GBP 6M LIBOR -30

RUB 800 million 2yr9m Fixed Rate Notes due 01 Feb 2020 01-Feb-2020 9,402,235 USD 6M LIBOR -19

USD 45.71 million Fixed Rate Note 1.88% due 13 March 2020 13-Mar-2020 33,922,330 USD 6M LIBOR -16

RUB 60 million AfDB Fixed Rate Notes due May 2020 12-May-2020 783,480 USD 6M LIBOR -22

USD 54.21 million Fixed Rate Note 1.95% due July 31st 2020 31-Jul-2020 40,252,161 USD 6M LIBOR -15

TRY 2.2 million due Oct 2020_Tap1 13-Oct-2020 618,412 USD 6M LIBOR -24

GBP 150 million Single-Callable due January 2021 23-Jan-2021 135,126,614 USD 6M LIBOR -25

USD 39.59mn Fixed Rate Note 2.17% due March 1st 2021 01-Mar-2021 29,396,477 USD 6M LIBOR -2

IDR 35 billion due 6th April 2021 06-Apr-2021 1,938,725 USD 6M LIBOR -3

IDR 11 billion AfDB Fixed coupon Notes due 6th April 2021 06-Apr-2021 609,024 USD 6M LIBOR -3

IDR 35 billion Fixed Rate Note due 17 May 2021 17-May-2021 1,935,359 USD 6M LIBOR -3

RUB 600 million Fixed Rate transactions due 21 June 2021 21-Jun-2021 5,046,939 USD 6M LIBOR -13

USD 38.65 million Fixed Rate Note 2.23% due 30 July 2021 30-Jul-2021 28,698,506 USD 6M LIBOR -1

INR 600 million Fixed Rate Notes due 23 Aug 2021 23-Aug-2021 6,662,099 USD 6M LIBOR -13

RUB 3.5 billion due Jan-2022 taps 19-Jan-2022 33,021,230 USD 6M LIBOR 2

USD 100 million 2.18% Fixed Rate Note due 01 February 2022 01-Feb-2022 73,520,222 USD 6M LIBOR 2

USD 40.06 million Fixed Rate Note 2.33% due March 1st 2022 01-Mar-2022 29,745,463 USD 6M LIBOR 2

USD 39.72 million Fixed Rate Note 2.41% due August 1st 2022 01-Aug-2022 29,493,005 USD 6M LIBOR 5

USD 129 million Fixed Rate issue due 01 August 2022 01-Aug-2022 92,202,449 USD 6M LIBOR -2

II

USD 39.68 million Fixed Rate Note 2.46% due March 1st 2023 01-Mar-2023 29,463,305 USD 6M LIBOR 6

USD 131 million Fixed Rate issue due 01 March 2023 01-Mar-2023 93,535,735 USD 6M LIBOR 2

USD 38.44 million Fixed Rate Note 2.51% due August 1st 2023 01-Aug-2023 28,542,576 USD 6M LIBOR 7

TRY 25 million due 7th November 2025 07-Nov-2025 1,968,623 USD 6M LIBOR 10

RUB 1.5 billion, 9.9yr Fixed Rate Notes due 01 Feb 2027 01-Feb-2027 9,637,242 USD 6M LIBOR 17

USD 10 million - Fixed Rate Callable 17-Aug-2027 7,100,004 USD 6M LIBOR -3

TRY 50 million Zero Coupon Deep Discount Notes due Aug 2027 23-Aug-2027 3,751,681 USD 6M LIBOR 15

TRY 50 million Deep Discount Notes due Aug 2027 23-Aug-2027 3,971,085 USD 6M LIBOR 15

SEK 733 million due Sep 2027_Light up and Power Africa Bond 21-Sep-2027 64,802,454 USD 6M LIBOR 16

AUD 10 million due 19 October 2027 19-Oct-2027 5,512,953 USD 6M LIBOR 15

MXN 17.8 billion Zero Coupon transactions due 9th February 2032 09-Feb-2032 62,713,095 USD 6M LIBOR 16.2

JPY 500 million Callable Due 01 Feb 2037 01-Feb-2037 3,281,249 USD 6M LIBOR 17

JPY 300 million Callable FX-Linked Notes due 01 Feb-2037 01-Feb-2037 1,953,952 USD 6M LIBOR 6

JPY 100 million callable Fixed rates notes , due 1 February 2037 01-Feb-2037 632,827 USD 6M LIBOR 15

JPY 300 million Callable Due 30 Jan 2042 30-Jan-2042 1,943,043 USD 6M LIBOR 15

ZAR 3.25 billion due 5 April 2016 05-Apr-2046 1,456,753 3M JIBAR 45

JPY 300 million Multi-Callable PRDC Note due February 2047 02-Jan-2047 1,968,827 USD 6M LIBOR 15

JPY 1.0 billion Capped PRDC due Feb 2047 01-Feb-2047 6,458,697 USD 6M LIBOR 17

JPY100 million Dual Currency Note due 2047 01-Feb-2047 650,631 USD 6M LIBOR 17

JPY 200 million Callable Notes due February 2047 01-Feb-2047 1,336,121 USD 6M LIBOR 17

JPY 300 million Multi-Callable Note due February 2047 01-Feb-2047 1,968,762 USD 6M LIBOR 3

JPY 200 million FX-Linked Notes, Due 01 Feb 2047 01-Feb-2047 1,295,790 USD 6M LIBOR 16

JPY 200 million PRDC Notes due 1 Feb 2047 01-Feb-2047 1,291,472 USD 6M LIBOR 15

ZAR 170 million Deep Discount Notes due April 2047 05-Apr-2047 1,655,549 3M JIBAR 45

JPY 500 million Callable PRDC Notes due April 2047 26-Apr-2047 3,340,303 USD 6M LIBOR 17

USD 30 million Zero Callable EMTN Notes due April 2047 26-Apr-2047 21,980,437 USD 6M LIBOR -25

JPY 300 million due August 2047 01-Aug-2047 1,893,832 USD 6M LIBOR 15

JPY 500 million notes due August 2047 01-Aug-2047 3,126,213 USD 6M LIBOR 13

JPY 300 million Callable due 1 August 2047 02-Aug-2047 1,898,482 USD 6M LIBOR 15

JPY 300 million Callable FX-Linked Notes due Oct 2047 03-Oct-2047 1,913,229 USD 6M LIBOR 15

JPY 300 million Callable Capped Notes due 20 November 2047 20-Nov-2047 1,874,578 USD 6M LIBOR 15

JPY 300 million Callable PRDC Note due 21 November 2047 21-Nov-2047 1,874,578 USD 6M LIBOR 15

EUR 30 million Callable Zero Coupon Notes due 21 June 2057 21-Jun-2057 24,302,715 USD 6M LIBOR 16

EUR 100 million Zero coupon due 10 October 2057 10-Oct-2057 44,621,199 USD 6M LIBOR 16

Uridashi trades

ZAR 15 million Due June 2021 15-Jun-2021 812,713 3M JIBAR 30

IDR 23 billion Notes due March 2021 10-Mar-2021 1,272,898 USD 6M LIBOR -3

IDR 110 billion due March 2020 02-Mar-2020 6,070,707 USD 6M LIBOR -19

BRL 5.5 million due March 2021 16-Mar-2021 1,280,407 USD 6M LIBOR -3

RUB 65 million due March 2020 17-Mar-2020 826,566 USD 6M LIBOR -19

ZAR 23 million due 30 March 2021 - Improve the Quality of Life for People in Africa 30-Mar-2021 1,303,589 USD 6M LIBOR -3

JPY 100 million Callable FX-Linked Notes due February 2047 01-Feb-2047 644,201 USD 6M LIBOR 17

MXN 20 million due April 2021 21-Apr-2021 755,769 USD 6M LIBOR -3

NZD 1.5 million due April 2021 21-Apr-2021 767,801 USD 6M LIBOR -3

IDR 13.5 billion due April 2021 21-Apr-2021 747,438 USD 6M LIBOR -3

III

BRL 4.2 million due May 2021 24-May-2021 985,869 USD 6M LIBOR -3

MXN 19 million due May 2021 24-May-2021 747,199 USD 6M LIBOR -3

IDR 30 billion Fixed Rate Notes due June 2021 09-Jun-2021 1,664,780 USD 6M LIBOR -3

ZAR 12 million due 15 June 2021. Improve the Quality of Life for People in Africa 15-Jun-2021 659,544 USD 6M LIBOR -13

INR 60 million due 15 June 2021. Improve the Quality of Life for People in Africa 15-Jun-2021 682,398 USD 6M LIBOR -13

INR 200 million Zero Coupon transactions due 17 May 2024 17-May-2024 2,994,939 USD 6M LIBOR 6

IDR 40 billion Due July 2021 06-Jul-2021 2,191,553 USD 6M LIBOR -13

MXN 19 million Due June 2021 "Improve the Quality of Life for People in Africa '' 30-Jun-2021 728,435 USD 6M LIBOR -13

BRL 4.2 million Due June 2021. 'Improve the Quality of the Life for people in Africa'' 30-Jun-2021 901,220 USD 6M LIBOR -13

INR 1.6 billion transactions Due 07 June 2022 07-Jun-2022 7,944,795 USD 6M LIBOR -3

JPY 200 million Due 30 Jan 2042 30-Jan-2042 1,301,152 USD 6M LIBOR 15

ZAR 24 million due 14 July 2021 - Improve the quality of Life for the People of Africa 14-Jul-2021 1,331,181 USD 6M LIBOR -13

INR 60 million due 15 June 2021. Improve the Quality of Life for the People of Africa 14-Jul-2021 672,066 USD 6M LIBOR -13

IDR 36 billion Due August 2021 09-Aug-2021 1,959,333 USD 6M LIBOR -13

BRL 4.9 million Due August 2021 09-Aug-2021 1,067,166 USD 6M LIBOR -13

TRY 8 million transactions Due 26 July 2019 'Improve the Quality of Life for the People in Africa'' 26-Jul-2019 1,049,819 USD 6M LIBOR -28

MXN 19 million due 9 August 2021 09-Aug-2021 765,089 USD 6M LIBOR -13

RUB 60 million due 9 August 2021 09-Aug-2021 726,234 USD 6M LIBOR -13

BRL 6 million due 17 Feb 2021- Improve the Quality of Life for the People in Africa 17-Feb-2021 1,310,519 USD 6M LIBOR -19

TRY 6.5 million Fixed Rate Notes due 17 Feb 2021- Improve the Quality of Life for the People in Africa 16-Aug-2019 1,308,716 USD 6M LIBOR -28

BRL 4.4 million due September 2021 13-Sep-2021 1,787,906 USD 6M LIBOR -13

TRY 29 million -Improve the Quality of Life for the People of Africa 14-Sep-2020 2,618,602 USD 6M LIBOR -24

INR 87 million due Sept-2021- Improve the Quality of Life for the People of Africa 15-Sep-2021 961,289 USD 6M LIBOR -13

BRL 7.3 million Fixed Rate Notes due October 2021 13-Oct-2021 1,640,243 USD 6M LIBOR -13

IDR 18 billion due October 2021 12-Oct-2021 955,617 USD 6M LIBOR -13

BRL 40 million due Sep 2020 01-Sep-2020 8,663,060 USD 6M LIBOR -24

IDR 12.5 billion due Sep 2020 28-Sep-2020 662,420 USD 6M LIBOR -24

TRY 8.5 million due Oct 2020 13-Oct-2020 1,292,016 USD 6M LIBOR -24

TRY 55 million due Oct 2022 31-Oct-2022 7,317,300 USD 6M LIBOR -3

BRL 5.8 million, 4yr Fixed Rate Notes due November 2021 08-Nov-2021 1,299,906 USD 6M LIBOR -13

IDR 18 billion due November 2021- " Improve the Quality of the Life for the People of Africa " 08-Nov-2021 952,064 USD 6M LIBOR -13

BRL 3.2 million due November 2021- " Improve the quality of life for the people of Africa" 09-Nov-2021 710,563 USD 6M LIBOR -13

TRY 6.3 million due November 2020- " Improve the quality of life for the people of Africa" 09-Nov-2020 438,020 USD 6M LIBOR -24

ZAR 12 million due 22 November 2021 Improve the quality of life for the people of Africa 21-Nov-2021 1,241,998 USD 6M LIBOR -13

BRL 8 million due 13 December 2021 13-Dec-2021 1,794,607 USD 6M LIBOR -13

IDR 18 Billion due 13 December 2021 13-Dec-2021 945,890 USD 6M LIBOR -13

AUD 10.537 million, 5yr Fixed Rate Notes due 25 October 2022 25-Oct-2022 5,867,580 USD 6M LIBOR -3

NZD 6.011 million, 5yr Fixed Rate Note due 25 October 2022 25-Oct-2022 3,056,793 USD 6M LIBOR -3

USD 2.73 million, 5yr Fixed Rate Note due 25 October 2022 25-Oct-2022 1,937,077 USD 6M LIBOR -3

IDR 24 billion, 2yr Fixed Rate Note due 27 November 2019 27-Nov-2019 1,259,723 USD 6M LIBOR -28

EUR 25 million - 30 years Multi-Callable Note due 30 October 2047 30-Oct-2047 20,851,231 USD 6M LIBOR 15

African currency linked notes

NGN 9.75 billion Fixed Coupon Notes due Jan-22 17-Jan-2022 18,601,329 USD 6M LIBOR 0

NGN11 billion FX-Linked USD Settled Zero Coupon due Feb-22 08-Feb-2022 11,026,323 USD 6M LIBOR 1

USD 16.81 million Deep Discount Notes NGN linked Zero due Feb-22 22-Feb-2022 6,636,446 USD 6M LIBOR 1

IV

USD 10 million BWP FX-Linked USD-Settled due Sept-20 08-Sep-2021 7,085,816 USD 6M LIBOR -24

ANNEX 2. Transaction Summary: USD 2.5 billion Global due March 2020

On Wednesday, 8th March 2017, the AfDB launched and priced a new USD 2.5 billion 3-year

Global benchmark transaction due 16 March 2020. The new 3-year issue was AfDB’s first

USD Global benchmark this year. With a final size of USD 2.5 billion, the transaction was the

largest benchmark ever launched by the Bank, and represents a clear step-up in issuing profile,

positioning the AfDB within the restricted group of issuers of large, liquid global benchmark

transactions.

A mandate for a new 3-year USD Global benchmark was announced on Tuesday, 7th March

2017, at 1 pm London time, and Initial Pricing Thoughts (IPTs) in the context of mid-swaps

(MS) plus 5 basis points (bps) area. The deal was met by strong investor interest of in excess

of USD 2.6 billion (excluding JLM interest) from the outset and books were officially opened

in the European morning on Wednesday at 8 am London time with a price guidance of

MS+4bps area, 1bp tighter than IPTs. Momentum continued to build throughout the European

morning. With books in excess of USD 3.8 billion (excluding JLM interest) by 12.15 pm

London time, the transaction went subject for US investors at 8.30am New York time.

On the back of extremely high quality orders and with final demand in excess of USD 3.8

billion (excluding JLM interest), the Bank decided to set the deal size at USD 2.5 billion. The

pricing of the transaction took place at 6.25 pm London time, with a re-offer yield of 1.926%,

equivalent to a spread of 25.8bps against the 3-year 1.625% US Treasury bond due March

2020.

V

Chart: USD 2.5 billion March 2020 distribution statistics

Investor demand by region Investor demand by type

37%

22%

35%

6%

Americas Asia Europe, Middle East Africa

69%10%

18%

3%

CB/OI Banks

Asset Managers Ins/Pen/Others

VI

Annex 3. Transaction Summary: USD 2.0 billion Global due Nov. 2022

On Wednesday, November 8, 2017, the African Development Bank (“AfDB”), rated Aaa

(Moody’s) / AAA (S&P) / AAA (Fitch), launched and priced a new USD 2 billion 5-year

Global benchmark transaction due 16 November 2022.

The new 5-year USD benchmark issue is AfDB’s second USD Global benchmark this year

(following the very successful $2.5bn 3-year issued back in March) and the largest 5-year USD

benchmark to date from the issuer. It brings a new liquid and on-the-run reference on the 5-

year point and extends AfDB’s outstanding USD curve and also further demonstrates AfDB’s

commitment and strategy to establish liquid lines at the key benchmark maturities. Following

the issuance of the largest ever AfDB USD benchmark in March, the success of this 5-year

transaction is a clear vote of confidence from investors of AfDB’s issuance strategy.

Given the constructive market backdrop after a combination of European holidays, Fed

meeting, US employment data and lead up to the announcement of Jerome Powell as new Fed

chair, the AfDB decided to announce the mandate for a new 5-year Global USD transaction on

Tuesday, November 7, 2017 at 8:30 am London time. Initial price thoughts of midswaps +12

basis points area were subsequently released to the market at 12:00 pm London time.

Initial investors’ reaction was good with interest exceeding USD 1.3 billion before the books

were officially opened the following morning at 8:10 am London time with a spread guidance

of midswaps +12 basis points area, in line with initial pricing thoughts. The order book grew

steadily during the morning session with demand exceeding USD 2 billion by 11:25 am London

time. EMEA and Asian books went subject at 12:00pm London time. By 2:15pm London time,

books had continued to grow in excess of USD 2.35 billion (excluding JLM interest), and the

deal was launched as a USD 2 billion 5-year at m/s+12bps. The new USD 2 billion 5-year

benchmark priced at 4.45pm London time at m/s+12bps implying a 19.35bps spread over the

benchmark Treasury and a re-offer yield of 2.179%. More than 55 investors participated,

including central banks and official institutions who bought the largest share (49%) followed

by bank treasuries (32%) and fund managers (10%). In terms of geography, Europe/Middle

East/Africa (EMEA) accounts were well represented (42%) followed by the Americas (41%)

and Asian accounts (17%).

Chart: USD 2.0 billion November 2022 distribution statistics

* Europe, Middle East, and Africa

** Central Banks and Official Institutions

CB/OI**; 49%

Bank; 32%

Fund Manager;

10%

Corp / Pensions / Ins; 7%

Other; 2%

EMEA*; 42%

Americas ; 41%

Asia; 17%

VII

ANNEX 4. Transaction Summary: EUR 1 billion benchmark due January

2024

On Tuesday January 17th, 2017, the AfDB successfully launched a EUR 1 billion 7-year

Benchmark transaction due 24th January 2024. This represented AfDB’s first ever 1 billion

EUR benchmark transaction following from its debut EUR 10-year issue in October of 2016.

The issue was announced on Monday 16th January at 3:45pm London time on the back of

supportive market conditions and despite uncertainty surrounding Theresa May’s press

conference on Brexit details. Initial Pricing Thoughts for this EUR 7-year Benchmark were

released at Mid-Swaps minus 3bps area on Tuesday 17th January at 8:00am. Books opened at

9:30am London time at a spread of Mid-Swaps minus 3bps, with indications of interest already

in excess of EUR 550 million from high quality investors.

Momentum continued into the morning with the book growing above EUR 700 million by

11am at which time spread was set at Mid-Swaps minus 3bps. Books closed at 12:00pm

London time, in excess of EUR 1.1 billion with very strong support from real money accounts

across regions and soon after the transaction was launched with a EUR 1 billion size at Mid-

Swaps minus 3bps. This second EUR benchmark transaction issue from the African

Development Bank was priced at 4:00pm London time with a spread of Mid-Swaps minus 3bps

in line with guidance, equivalent to a spread over the reference German Federal Bond (DBR)

1.750% February 2024 of 45.5bps.

Chart: EUR 1 billion January 2024 distribution statistics

Investor demand by region Investor demand by type

VIII

ANNEX 5. Transaction Summary: EUR 500 million Global due Nov. 2024

On Tuesday 14th November 2017, the African Development Bank (AfDB) rated Aaa / AAA/

AAA by Moody’s / S&P / Fitch (all stable) successfully priced a EUR 500 million 7-year

inaugural Social Bond transaction, following a European roadshow to present its newly

established social bond framework. The issue, three times oversubscribed within three hours

from formal book opening, was priced at MS-14bps, 2 bps inside of initial guidance. This

equated at the time of pricing to a spread of 41.4bps over the DBR 1.00% Aug 2024.

The transaction was announced on Monday 13th November 2017 at noon London time, with

Initial Pricing Thoughts for the EUR 7-year Social Bond being in released in the mid-swaps

(MS) minus “low teens” area.

Books officially opened at 8am London time on Tuesday 14th November 2017 for a EUR 500

million 7-year benchmark transaction, with price guidance of MS-12 bps area. Momentum

continued into the London morning with the book growing above EUR 900 million by 9am

London time, at which point guidance was revised tighter to MS-13bps area. Books officially

closed at 10.30am, London time, in excess of EUR 1.55 billion, and soon after the transaction

was launched with a EUR 500 million size with price set one basis point tighter at MS-14bps.

There was very strong support for the transaction, in particular from those investors who

integrate social and environmental considerations in their investment strategy. This is reflective

of the relevance of AfDB’s social mandate and of the solidity of its new Social Bond

framework. The final book saw 69 different accounts, of which 19 were new to the issuer.

IX

ANNEX 6. Average AfDB funding margin for sovereign loans and weighted

average maturity of debt raised

*As of H1 2017

The average funding margin of the Bank in USD and EUR has been relatively volatile since

the financial crisis began in 2007-2008. Although there was an improvement in the average

funding margins applicable to sovereign loans disbursing in USD and Euro since 2013, the

widening in credit spreads experienced starting in 2015 continued into 2017. The ZAR funding

margin remained relatively stable until 2015, but due to South African political and economic

uncertainty, credit spreads worsened resulting in more expensive funding levels.

* As of 15th November, 2017.

Note: There was no EPSA in 2009, 2012 and 2016, which skewed the WAM downward for

those years. 2008 had the lowest issuance amount (UA 1.1 billion) so the cost (in terms of

funding) to achieve the high WAM was not as great as compared to a typical year.

-35

-25

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average funding margin in basis points*

USD

EUR

ZAR

X

ANNEX 7. Borrowing requirements projections as of September 30th 2017 for Q4 2017 to Q4 2021

ANNEX 7: PROJECTIONS AS OF 30 SEPTEMBER FOR Q4 2017-2021

(A) CASH FLOW Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021

Inflow

Loan repayment 181 459 155 467 265 511 190 533 217 670 343 555 316 600 321 560 349

Income from loans 102 181 108 173 102 189 121 180 119 191 137 176 133 188 150 180 147

Average income on investment 50 51 51 51 51 51 51 51 51 50 50 50 50 49 49 49 49

Subscription payment 75 96 124 37 25 85 104 3 1 37 14 3 1 0 0 0 0

Total inflow 408 787 438 729 444 836 465 767 388 947 544 785 500 838 520 789 546

Outflow

Loan disbursements 649 841 841 841 841 585 683 927 1,431 635 743 1,008 1,556 663 775 1,051 1,623

Debt redemption 913 2,336 159 493 2,386 1,392 963 1,203 547 3,031 578 474 1,235 394 328 2,220 627

Financial charges 81 85 85 85 85 74 74 74 74 75 75 75 75 72 72 72 72

Net admistrative expenses 44 38 38 38 38 40 40 40 40 40 40 40 40 41 41 41 41

Allocations from income 0 0 83 0 0 0 78 0 0 0 72 0 0 0 67 0 0

Total outflow 1,687 3,300 1,206 1,457 3,350 2,091 1,838 2,244 2,092 3,782 1,508 1,598 2,906 1,170 1,283 3,384 2,363

NET CASH REQUIREMENT (QUARTERLY) -1,279 -2,513 -768 -728 -2,906 -1,254 -1,373 -1,477 -1,704 -2,834 -964 -813 -2,405 -332 -763 -2,596 -1,817

NET CASH REQUIREMENT (ANNUAL) -6,916 -5,808 -7,016 -5,508

(B) LIQUIDITY SCENARIO Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021

Net loan disbursement for the quarter 468 382 686 374 576 74 494 394 1214 0 399 453 1240 62 454 492 1273

Debt service requirement for the quarter 994 2,421 244 578 2,471 1467 1,037 1,277 621 3,106 653 549 1,310 466 400 2,292 699

Loan equivalent of signed guaranteed outstanding 588 588 588 588 588 588 588 588 588 588 588 588 588 588 588 588 588

Undisbursed equity investments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2,051 3,391 1,519 1,540 3,635 2129 2,119 2,260 2,423 3,694 1,641 1,590 3,138 1,116 1,442 3,372 2,561

Minimum Liquidity Level - PML 6,737 8,320 7,057 7,658 8,377 7,166 8,732 8,254 7,584 8,298 5,720 5,522 7,303 6,726 7,374 5,932

Source: FFMA

(C) BORROWING SCENARIO Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Annual borrowing amount

PML 6,737 8,320 7,057 7,658 8,377 7,166 8,732 8,254 7,584 8,298 5,720 5,522 7,303 FY 2018 FY 2019 FY 2020 BP 2018 *

Expected liquidity at the beginning of the period 9,308 10,316 8,320 7,658 8,377 8,377 8,732 8,732 8,254 8,298 8,298 7,325 7,303 6,726

Net cash requirement (1,279) (2,513) (768) (728) (2,906) (1,254) (1,373) (1,477) (1,704) (2,834) (964) (813) (2,405)

Allocation to HTM 0 0 0 0 0 0 0 0 0 0 0 0 0

Buy-back & redemption of new borrowings (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10)

Liquidity before borrowing 8,019 7,792 7,541 6,919 5,461 7,113 7,349 7,245 6,540 5,454 7,325 6,502 4,888

Minimum borrowing 2,297 528 116 1,458 2,916 1,619 1,383 1,009 1,759 2,844 0 801 2,415

Proposed borrowing to meet PML of next quarter 2,297 528 116 1,458 2,916 1,619 1,383 1,009 1,759 2,844 0 801 2,415

Expected liquidity at the end of the period 10,316 8,320 7,658 8,377 8,377 8,732 8,732 8,254 8,298 8,298 7,325 7,303 7,303 5,018 5,769 6,061 5,616

* In the case where the first year is higher than the three year average, the first year amount is used to ensure the PML is not breached

XI

ANNEX 8. Supranational borrowing requirements

Source: Dealers (Nomura), AfDB

* Funding year runs from July 1st 2017 to June 30th 2018

Note: The exchange rates used were as of September 30th, 2017.

Issuer 2017 borrowing

program

Estimated 2018

borrowing

program

Change in

borrowing

program

UA equivalent for 2018

borrowing

program

African Development Bank USD 9.6 billion USD 8 billion UA 5.6 billion

Asian Development Bank USD 28 billion USD 27-30

billion =

UA 19-21 billion

European Bank for

Reconstruction and Dev. EUR 6 billion EUR 6 billion =

UA 5 billion

European Investment Bank EUR 60 billion EUR 60 billion = UA 50 billion

Inter-American Dev. Bank USD 18.5 billion USD 15-20

billion =

UA 11-14 billion

International Finance

Corporation* USD 15 billion USD 15 billion =

UA 10.5 billion

World Bank* USD 56 billion USD 50-55

billion

UA 35-39 billion