UN agri fund dreams big after €65M bond to German pension funds

The head of funding at the U.N.’s International Fund for Agricultural Development says she dreams of IFAD becoming the bond issuer of the United Nations, as it announced a €65 million private placement with four German pension funds last week. The money will be used across IFAD’s loan portfolio, which supports small-scale farmers in low-income countries. Last year, the fund became the first U.N. agency other than the World Bank to issue bonds, via $100 million with Swedish insurance and pension fund, Folksam, and $50 million with Japanese Dai-ichi Frontier Life Insurance Co. Ltd. Last week’s 12-year €65 million bond with Hamburger Pensionskasse, or HPK, as key investor, means IFAD has now secured 77% of its $1.2 billion borrowing target, designed to support $3.5 billion worth of investments by 2024. All three bonds have been privately placed as the fund’s Integrated Borrowing Framework does not yet grant it the power to issue bonds on public markets. Natalia Toschi, IFAD’s head of funding, told Devex on Friday that while all U.N. agencies face fundraising challenges, IFAD and the World Bank, which teamed with UNICEF in 2021 to issue a five-year $100 million bond, are also financial institutions. “This is my dream: for IFAD to become the [bond] issuer of the United Nations,” Toschi said. “Of course, this is a dream and it comes with a lot of caveats.” Proper financial structures had to be in place to distinguish borrowing from pure fundraising, she said, adding that IFAD conducts extensive checks on the sustainability bona fides of their counterparts, including dealer banks, which in the case of the HPK bond was Deutsche Bank. “I think that there's a lot of potential for the United Nations, on a broader level, to look into innovative financing,” Toschi said. “And I really think that IFAD can play a role there. Again, I'm talking about my aspirations.” HPK noted in its press release that the IFAD deal offered “comparatively attractive returns for the risk class.” Toschi said that as an AA+ rated institution, IFAD had to pay slightly higher interest on its bonds than AAA institutions such as the World Bank, though the risk of nonrepayment was “pretty much the same.” “From an investor perspective, they're better off buying a bond from an AA+ institution because they get a little bit more return,” Toschi said while admitting she would love to see IFAD secure the coveted AAA rating. “We had an open discussion with the rating agencies. It’s the most difficult jump to make, although from a qualitative perspective, it is probably the closest. … [The ratings agencies] have to be very, very careful about who they let into that club. It comes with a lot of quantitative but also qualitative factors.” Toschi later reiterated by email, however, that as a development institution focused on low- and middle-income countries, the current AA+ rating “is perfectly in line with our core development mission and our ambitions.” As another component of its financing push, IFAD signed a €500 million loan with the European Investment Bank in November 2022. Toschi said IFAD had so far drawn €150 million from that agreement, which has a long utilization period and would make a “judgment call based on the markets in the next two years” whether to issue further bonds or to use the remaining €350 million from EIB in this funding cycle or the next. The EIB loan is due to be repaid within 20 years, with a grace period of five years.