• Bank exits non-sovereign shareholders to protect multilateral status
• Move aims to avoid losses in future sovereign debt restructurings
• Institution turns to hybrid capital to maintain lending capacity

The Trade and Development Bank (TDB) of Eastern and Southern Africa has exited its non-sovereign shareholders in a bid to safeguard its status as a multilateral lender and shield itself from future sovereign debt restructurings.

The decision, disclosed by group president Admassu Tadesse on the sidelines of the IMF and World Bank Spring Meetings in Washington, is intended to secure the institution’s preferred creditor status. This designation typically allows development banks to be repaid first and exempted from debt haircuts imposed on private creditors during crises.

Tadesse said the bank now fully meets the criteria of a multilateral lender and expects to be treated on par with institutions such as the IMF and the World Bank.

Lessons from Zambia and Ghana

TDB’s preferred creditor status, along with that of Afreximbank, was challenged during the sovereign defaults of Zambia in 2020 and Ghana in 2022. At the time, the Paris Club and the IMF pushed for these institutions to share losses with commercial banks, citing the presence of private shareholders in their capital structure.

Tadesse said the bank’s efforts to restructure its loans bilaterally with Zambia during the pandemic were undermined under the G20 Common Framework, forcing TDB to absorb what it considered a second, unfair round of losses.

A shift toward sovereign ownership

To remove any ambiguity, TDB said it held difficult discussions with its non-sovereign shareholders, including pension funds and sovereign wealth funds, to facilitate their exit. The bank now counts 25 African governments among its members, alongside entities such as the People’s Bank of China.

To offset the loss of private capital without limiting its operations, TDB is turning to hybrid capital instruments, which combine features of debt and equity. This approach is increasingly used by African development banks, including the African Development Bank and the West African Development Bank, to raise funds while preserving their sovereign structure.

With a balance sheet of $10 billion, TDB has invested more than $35 billion since its creation in 1985. It is involved in major energy projects, including the Coral South liquefied natural gas project in Mozambique and the Lake Turkana wind power project in Kenya.

Fiacre E. Kakpo