The World Bank Treasury

 

 

70 Years of Connecting Capital Markets to Development

"Capital markets are key to transforming society. Since its inaugural bond 70 years ago, the World Bank has pioneered many ‘firsts’. Our goal is not only to raise funds at the most reasonable cost for our client countries, but also to develop innovative solutions for the world's most difficult development challenges. Our history shows that when used innovatively and effectively, capital markets are a powerful force for good."

Arunma Oteh, World Bank Vice President & Treasurer

            

Timeline of Milestones: 1947-2017

1940's - 1960's

1947: First World Bank Bond Issue
1948: First Non-USD Issue
1949: SEC Exemption for World Bank Bonds
1951: First Public Offering Outside the US
1957: First Central Bank District Placement
1968: First Public Offering in the Middle East

1970's - 1990's

1971: First Public Offering in Asia
1974: Issue in 15th Currency
1981: Bank Executes First Currency Swap
1985: Bank Creates Shogun Bonds in Japan
1988: Bank Issues 25th Currency
1989: Bank Creates Global Bonds
1998: First Issue in Euros

2000's - 2010's

2000: First "E-Bond"
2004: First Public Offering in Latin America
2005: "Sustainable Development" Deposit with La Poste in France
2008: First Green Bond
2009: Issue in 50th Currency
2014: First Catastrophe Bond
2016: First Mulan Bond
2017: First SDG-Linked Bond
2017: First Pandemic Bond


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1947: First World Bank Bond Issued

At Bretton Woods, it was envisioned that the Bank would largely function through providing guarantees as opposed to loans. However, soon after the Bank began operations in June 1946, requests for loans out-weighed requests for guarantees. Moreover, under the Bank’s Articles of Agreement, a member’s paid-in capital could only be used for lending purposes with the consent of that member. Initially, only the US provided such consent. The demand for lending combined with the lack of capital freely available for lending, meant that the Bank needed by its second year of operation to access the bond market. To market the first bond, the Bank set up a small bond marketing office in the Federal Reserve Building in New York to lead the marketing of the first issue. The small group of Bank staff in the New York office were supplemented by “volunteers” provided by the leading New York banks and dealers. The Bank also held meetings in 18 different US cities before the inaugural issue and invited representatives of investors to visit the Bank in Washington and talk first hand with senior staff and Executive Directors. On July 15, 1947, the Bank issued its first bonds, a US$250 million dual tranche issue with both a ten year and a twenty five-year tranche. The offering was lead managed by Morgan Stanley. In all, more than 1,700 dealers throughout the US (out of the more than 2600 dealers that received invitation telexes) participated in the offering (more than twice the largest number of dealers that had ever participated in a securities offering to that point in time.) The inaugural issue was reported to have been six times over-subscribed and, according to the Bank’s 1948 Annual Report, the bonds immediately started trading at a premium.

Board Resolution 1947

International Bank Notes July 25,1947 Issue

Chronology of the World Bank in Capital Markets

 

1948: First Non-USD Issue

The Bank’s first bond issue outside the United States was a Swiss franc 17 million (US$4 million equivalent at the time) private placement issued June 1, 1948. The Bonds, which had a final maturity of 6 years, were placed directly with the BIS, with the Swiss franc proceeds on-lent to The Netherlands to be used principally to rebuild Dutch ship-building capacity. At the time of the Swiss private placement, the Bank had outstanding loans to only four countries, Denmark, France, Luxembourg and the Netherlands for a total amount of just under US$500 million.

 

1949: SEC Exemption for World Bank Bonds

In 1949, World Bank bonds were made “exempt securities” in the United States (exempt from ordinary registration and reporting requirements) by the US SEC. The SEC adopted the exemptions through regulations promulgated pursuant to the Bretton Woods Agreements Amendments Act. According to the Bank’s 1949 Annual Report, “this legislation has materially contributed to a broader market in the United States for the Bank’s obligations.”

 

1951: First Public Offering Outside the U.S.

The Bank’s first public offering outside the United States was a British pound 5 million (US$14 million equivalent at the time) issue executed in London in May, 1951. The bonds had a final maturity of 20 years, with the principal amortizing in years 15 (1966) through 20 (1971). The bonds were sold by a syndicate of banks led by Baring Brothers that also included Hambros, Lazard, Morgan Grenfell, Rothschilds and Shroeders. The Bank returned to the London market again in 1954 and 1960, each time with the same syndicate. The issue came at a time when an increasing amount of the Bank’s outstanding U.S. dollar bonds were being bought by investors outside the United States. According to the Bank’s 1951 Annual Report, by June 31, 1951 approximately US$39 million of the Bank’s dollar bonds (roughly 12% of the total amount outstanding) were held by non-U.S. investors, including by ten central banks. At the time of the U.K. public offering, there were Bank loans outstanding to 21 different countries – eight in Europe, seven in Latin America, and two each in MENA, Africa and Asia.

 

1957: First Central Bank District Placement

The Swiss Central Bank purchased a Swiss franc-denominated direct placement (US$ 47 million equivalent at the time) in January, 1957. According the Bank’s FY57 Annual Report, this was recognized as an “innovation in the Bank’s methods of raising money.” This first private placement was quickly followed by three private placements to the German Bundesbank in US$ and Deutsche mark (for a total of approximately US$145 million). By the end of FY60, the Bank had executed more ten direct placements with the Bundesbank. Over the next several decades, central bank private placements became an increasingly important part of the Bank’s funding program, reaching an annual peak of 80% of the Bank’s total funding program in 1974 (for an amount of US$1.47 billion), followed by 76% in 1975 (for a total of US$2.65 billion). The German Bundesbank and the Bank of Japan were the largest central bank direct lenders to the Bank. The Bank also borrowed in 1974 and 1975 from the governments of Iran, Abu Dhabi, Libya, Saudi Arabia, Nigeria, Venezuela and Oman, highlighting the high reserve levels of petroleum exporting countries in those years.

 

1959: Bank Achieves Triple-A Rating

The Bank’s first bond issue in 1947 was rated AA by Fitch Ratings and A by Standard & Poor’s. Moody’s was also in existence in 1947, but at that time it was not rating financial institutions. Moody’s made its first exception to this policy for the Bank in 1950 and rated the Bank single-A. Bank management was very aware of the importance of the Bank having a low funding cost and pressed the rating agencies, throughout the 1950’s, to increase the Bank’s ratings. In 1951, Bank President Meyer wrote that Moody’s reluctance to increase its rating on the Bank resulted from “a disposition to be ultra-conservative on anything labeled ‘international’.” In 1958, the credit rating agencies warned the Bank that its ratings may be in jeopardy since the amount of its outstanding bonds was approaching the US share of the callable capital. In response, the Bank rapidly mobilized a capital increase. On September 15, 1959, the Bank’s Board of Governors approved a capital increase (that doubled the callable capital but did not include any additional paid-in capital). Later that same month, the rating agencies all upgraded the Bank to triple-A.

 

1968: First Public Offering in the Middle East

In 1968, the Bank issued its first Middle Eastern public offering (a Kuwaiti dinar 15 million (US$ equivalent 42 million at that time) issue in Kuwait. The Kuwait Investment Company managed the issue. This public offering came shortly after the Bank launched its first ever bond issue in the Middle East, a US$15 million, 26-year direct placement to the Saudi Arabian Monetary Authority. The Kuwaiti dinar issue was initially intended to be a private placement to the Kuwait Fund for Arab Economic Development. However, the Director of the Kuwait Fund requested that it be done as a public offering in the interest of developing the Kuwaiti capital market.

 

1971: First Public Offering in Asia

The Bank’s first public offering in Asia was a Japanese yen 11 billion (US$30 million equivalent at that time) issue of 10 year bonds. The issue was managed by Nomura Securities and came one year after the Bank’s first issue in Japan, a Japanese yen 72 billion (US$200 million equivalent at that time) direct placement to the Bank of Japan. Japan quickly became a very important market for World Bank bonds. By the end of 1971, Japanese investors already held 8% of the Bank’s outstanding debt (led by the Bank of Japan).

 

1974: Issue in 15th Currency

In 1974, the Bank reached the milestone of issuing bonds in fifteen different currencies with a UAE dirham 300 million (US$ 76 million equivalent at that time) issue that was sold as a direct placement to the Government of Abu Dhabi. In 1974, the Bank also issued for the first time in Saudi Riyal, and Venezuelan Bolivar, reflecting the increasing importance at that time of OPEC countries to the Bank’s borrowing program.

 

1981: Bank Executes First Currency Swap

In order to access additional Swiss franc liquidity, the Bank entered into the first formal currency swap agreement (with IBM). Under this transaction, the Bank received US dollars and paid Swiss francs. Later the same year, the Bank entered into additional currency swap transactions to access Swiss francs and Deutsche mark. The volume of the Bank’s currency swap transactions grew quickly. In FY82, the aggregate notional of currency swap transactions was US$758 million and in FY83 it had reached US$1.73 billion. According to the Bank’s 1982 Annual Report, currency swaps were “viewed as a means of increasing, not substituting, the [Bank’s] direct access to Swiss francs and Deutsche mark, which it will continue to borrow directly in the capital markets of Switzerland and [Germany]. Four year later, the Bank executed its first interest rate swaps, entering into transactions where the Bank received fixed rate US dollars and paid floating rate US dollars based on the three-month Treasury bill rate. By the end of 1985, the aggregate notional of all swap transactions entered into by the Bank was US$5.15 billion.

 

1985: Bank Creates Shogun Bonds in Japan

In 1985, the Bank issued the first “Shogun Bond” (a domestic bond issued in a foreign currency) in Japan, a US$300 million ten-year issue. This issuance marked the beginning of the Bank providing foreign currency denominated investment products to Japanese investors, which would become a mainstay of the Bank’s borrowing program.

 

1988: Bank Issues 25th Currency

In 1988, the Bank issued in its twenty-fifth currency, New Zealand dollars. The New Zealand dollar 75 million (US$45.5 million equivalent at that time) five-year issue was launched in the so-called “Eurokiwi” offshore market.

 

1989: Bank Creates Global Bonds

The Bank created the “global bond” (a bond that simultaneously settles in multiple clearing systems around the world) in 1989 to address the pricing disparities that existed at the time between similar IBRD bonds issued in different markets. The Bank’s first global bond issue was a US$1.5 billion 8.375% ten-year issue launched in June, 1989. It was lead managed by Deutsche Bank and Salomon Brothers, listed on the Luxembourg and New York Stock Exchanges and settled in Euroclear and Fedwire. It was the most actively traded non-government bond in Euroclear in 1989. According to the Bank’s 1990 Annual Report, the Bank devised the global bond format “to permit the full range of international and domestic demand to be reflected in a world price for securities by eliminating impediments to liquid, trans-regional trading.”

 

1998: First Issue in Euros

The Bank’s first Euro-denominated issue was a EUR 500 million (US$543 million equivalent at that time) seven-year issue. The bond, which was managed by a global, ten bank consortium, was issued in August 1998, four months prior to the introduction into circulation of the Euro on January 1, 1999.

 

2000: First "E-Bond"

The Bank issued the first fully integrated electronic bond (“E-bond”) in January, 2000, a US$3 billion five-year issue that was the first bond to be offered globally through online platforms. Goldman Sachs was the sole book-runner among a nine dealer syndicate that all had electronic distribution capability (including retail-oriented brokers Charles Schwab and Paine Webber). The distribution involved 570 separate tickets, with the smallest being a US$1,000 order placed through Charles Schwab’s online platform. The Bank Treasury launched a new debt securities website to coincide with the launch of the E-bond.

 

2004: First Public Offering in Latin America

In March, 2004, the Bank issued its first bond in a Latin American domestic market, a Colombian peso 535.6 billion (US$200 million equivalent at that time) with an inflation linked coupon that paid a fixed spread to the Colombian consumer price index. The issue was arranged by ABN AMRO, lead managed by Corfinsura of Colombia and listed on the Colombia Stock Exchange.

 

2005: "Sustainable Development" Deposit with La Psote in France

In June, 2005, the Bank teamed with La Poste (the French Postal System) to offer La Poste customers a deposit linked to an IBRD bond. The marketing of the deposit focused on the sustainable development work of the Bank, and depositors also received regular updates on Bank projects. The deposit, called “Toniciel Banque Mondiale,” had a five-year term and paid a fixed coupon that stepped up every six months. The minimum investment size was EUR 500.

 

2008: First Green Bond

In 2008, the Bank issued the first labeled “Green Bond,” a Swedish kroner 2.325 billion 3.5% six-year issue. The bond was lead managed by SEB and placed with a number of Scandinavian institutional investors. The proceeds of the bonds were designated to use to support Bank lending for projects that meet certain climate change mitigation and adaptation criteria.

 

2009: Issue in 50th Currency

The Bank’s 50th currency issue was a Nigerian Naira 3 billion (US$19 million equivalent at that time) one-year issue. The issue was lead managed by J.P. Morgan and sold to the World Supporter Fund, a retail bond fund in Japan managed by Nikko Asset Management and composed entirely of World Bank bonds denominated in various emerging market currencies.

 

2014: First Catastrophe Bond

The Bank issued its first catastrophe bond off its Capital-at-Risk Notes program, a US$30 million three-year issue. The bond was linked to earthquakes and tropical cyclones in 16 Caribbean countries. GC Securities acted as placement agent for the issue.

 

2016: First Mulan Bond

In August 2016, the Bank issued the first “Mulan Bond” (a Chinese domestic market bond denominated in Special Drawing Rights (SDR)), a SDR 500 million (US$ equivalent 700 million) 0.49% three-year issue. The bonds were issued under a SDR 2 billion program approved by the People’s Bank of China. The lead book-runner was the Industrial and Commercial Bank of China and the joint lead underwriters were China Construction Bank and China Development Bank. The bond was issued shortly before the inclusion of the Chinese renminbi as the fifth currency in the SDR on October 1, 2016.

 

2017: First SDG-Linked Bond

In March, 2017 the Bank issued Euro 163 million of bonds linked to the Solactive Sustainable Development Goals (SDG) Index. The transaction was split into two tranches, a Euro 106 million 15-year tranche, and a Euro 57 million 20-year tranche, with the 20-year tranche paying a fixed coupon of 1.2% for the first ten years. The issue was lead managed by BNP Paribas.

 

2017: First Pandemic Bond

In June, 2017 the Bank issued the world’s first bonds linked to global pandemics, in support of the Pandemic Emergency Financing Facility (“PEF”). The bonds, together with derivatives, passed an aggregate of US$425 million of pandemic risk for three years to over thirty separate capital markets and insurer investors. The bonds and derivatives provide coverage for outbreaks of six different viruses, including pandemic influenza, filo virus (including Ebola) and corona virus (including SARs). President Kim executed the bond issuance on behalf of the Bank on June 28, 2017. The issue was lead managed by Swiss Re Capital Markets (which also acted as co-structuring agent), with Munich Re as co-manager and co-structuring agent and GC Securities as co-manager.