The International Finance Corporation (IFC) on May 10 announced the issuance of the inaugural offshore Khmer riel (KHR) bond, supporting the creation of capital markets for Cambodia and the expansion of local currency lending to micro and small businesses, including farmers and women entrepreneurs.
The proceeds of the 48.6-million-Cambodian-riel (US$0.012 million) bond will be used to replace a portion of the local currency funding for the first KHR bond issued in the country by Cambodian microfinance institution Hattha Kaksekar Limited (HKL), in which IFC invested in late 2018.
The offshore KHR bond enables international investors to take Cambodian riel risk and will be listed on the Luxembourg Stock Exchange. With this latest transaction, IFC has helped build capital markets both onshore and offshore for Cambodia – issuing the first offshore KHR bond to fund its purchase of the first local currency bond in the country and sending a strong signal of confidence in the Cambodian economy.
The offshore bond offering enables the IFC to provide medium-term KHR funding to allow HKL to provide affordable loans to rural borrowers. This will not only expand local currency access for farmers and small business owners, but also sends a confident signal to help Cambodia develop local currency funding over the long term.
IFC’s initial investment in the bond was originally supported by the International Development Association (IDA) under the IDA’s private sector window local currency facility in November 2018.
IFC vice-president and treasurer John Gandolfo describes the offshore Khmer riel offering as a milestone transaction, bringing together a client’s need for local currency funding and IFC’s access to tap investor demand for KHR assets. “This transaction demonstrates IFC’s ability to develop debt capital markets financing alternatives as market conditions evolve,” he adds.
IFC country manager for Cambodia, Lao PDR and Vietnam, Kyle Kelhofer, says the bonds allow for the mobilization of international local currency funding into the country’s projects and that the IFC tends to replicate and scale up this model to address some of the country’s main socio-economic challenges.
IFC has been pioneering the issuance of offshore local currency bonds in Asia to help develop the domestic capital markets and to boost foreign investment in those countries. The IFC offshore bond strategy helps bring depth and diversity to the domestic capital markets, as well as offers an alternative source of funding for corporates. It has previously launched, among others, offshore Bangladesh taka bonds and Indian rupee-linked offshore bonds.