Alecta invests $100m in emerging markets SDG bond guaranteed by development agency

AFA Insurance also backed the bond, which is linked to loans from impact house responsAbility

Swedish pension fund Alecta has invested in a bond to promote the Sustainable Development Goals (SDGs)  in emerging markets, which has been guaranteed by development agency Sida. 

It marks the first time the Swedish development agency has guaranteed a privately-funded social bond.  

Insurance company AFA Insurance has also invested in the $152.5m bond, which priced this week. Danske Bank acted as arranger. 

Effectively structured as a securitisation, the proceeds of the bond will pool the financing needs of “an extensive loan portfolio” that addresses SDGs in emerging markets, originated by impact-focused asset manager responsAbility. 

“The purpose of the loans is to finance both short-term and long-term needs of the borrowers, including working capital, inventory or receivables financing, as well as capital expenditures,” said Alecta. 

The bond has been issued by a special purpose vehicle (SPV) called Financing For Healthier Lives, Julian Jonsson, Portfolio Manager at Alecta, told RI. The loan portfolio consists of loans from around 50 different borrowers that support improved access to health and sanitation, the reduction of pollution through renewable energy, sustainably produced food and access to finance.

Jonsson said Alecta has increased its investments in social bonds in the past couple of years, but that there is still a lack of suitable products to invest in. The ‘blended finance’ approach, which involves both private and public capital, and the role of organisations with a presence in emerging markets, gave Alecta comfort over the structure of the transaction, he added. 

The 5.5-year bond will pay a coupon of 200bps over the 6-month US Libor rate, and Sida has guaranteed 25% of the bond through a first-loss mechanism. 

Impact will be measured and reported against a number of KPIs developed by responsAbility, Jonsson said. 

It marks Alecta’s second investment in a financial instrument developed by responsAbility. In 2019, it invested with US government agency OPIC in a $175m microfinance securitisation of a loan portfolio of 26 micro and SME finance organisations, where Alecta took the first loss tranche.