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Background Papers

Jan 7, 2004

Bonds

INTER-AMERICAN DEVELOPMENT BANK BORROWS $7.2 BILLION IN INTER-AMERICAN DEVELOPMENT BANK BORROWS $7.2 BILLION IN 2003

Bank expects to raise up to $6 billion in 2004

The Inter-American Development Bank raised the equivalent of $7.2 billion equivalent in net proceeds in international capital markets during 2003. This amount ensured a sound level of liquidity to meet the evolving needs of its lending program for the development of Latin America and the Caribbean.

Strong investor interest generated demand for high quality bonds that enabled the Bank to accelerate its funding program during the first half of 2003. By advancing the funding program, the Bank not only met the needs of investors but it also secured more favorable funding costs in 2003 compared with the prior year due to favorable market conditions.

Two strategic, global benchmark bonds were successfully launched in the first semester of 2003. In January, the Bank issued a $2 billion bond with a 3.375 per cent coupon maturing in March 2008. In June, the Bank launched a $1 billion bond with a 3.50 percent coupon maturing in July 2013. Both issues met with strong international demand.

The IDB has maintained a triple-A credit rating from both Moody’s and Standard & Poor’s ever since its first bond issue in 1962. This high quality rating enables the Bank to offer long-term development loans to Latin America and Caribbean countries at attractive interest rates.

Opportunities in an evolving market

The Bank accessed a range of markets, currencies and investors during 2003.

Investor demand from Asia was especially strong and that region accounted for 83.5 percent of IDB bond purchases in 2003 compared with 57 percent in 2002. The remaining 2003 geographical distribution of IDB bonds was 8.5 percent to Europe and the Middle East and 8 percent to the Americas. The rise in Asian participation is attributed to increased demand from Japanese retail investors that were seeking high quality bonds. The IDB floated various bonds denominated in Australian dollars, Canadian dollars, British pounds sterling, New Zealand dollars and U.S. dollars targeted exclusively to Japanese retail investors.

To tap retail investor interest in Europe, the Bank launched a bond denominated in Hungarian forints, and the issue was reopened later in the year due to additional demand.

Retail investors have played an increasingly important role to IDB and accounted for more than half of the Bank’s total distribution of bond issues in 2003. Institutional investor participation declined to 43 percent from 67 percent in 2002. However, institutional investors continued to play a dominant and important role in the IDB’s strategic, global benchmark bonds.

The U.S. dollar continued to be the chief currency for operations both before and after swaps, but the Bank also diversified its funding opportunities by borrowing in a broad range of currencies.

The Bank exercised its option to terminate early 16 of its bond issues in currencies that included euros, Japanese yen, Taiwan dollars and U.S. dollars for a total of US$1.1 billion. By redeeming these bonds earlier than the final maturity date, the Bank reduced its borrowing costs in upcoming years.

The Bank’s Board of Executive Directors has approved a borrowing authorization of $8 to $10 billion in face value with the expectation of net proceeds of around $6 billion. The interest rate composition of Bank’s bond issues during 2004, after swaps, will continue to be a mixture of fixed and floating rates. The Bank expects to issue in a broad range of currencies in various formats, including benchmark global transactions, in accordance with its funding needs, investor demand and market conditions.

 

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