LONDON, Dec 14 (Reuters) - It’s not only biologists, philanthropists and donor governments who are needed to make vaccine projects in poor countries work. Financial engineers — the bogeymen of the recent crash — also have a role.
A new kind of bond issue is one of the smart tools deployed to raise money for the GAVI Alliance, a project to bring vaccines to the developing world that was launched in January 2000 at the Davos World Economic Forum. Designed to roll forward future donor pledges into cash-in-hand today, the idea was pioneered in 2005 by Gordon Brown, then British finance minister.
The bonds have struck a chord with institutional investors who appreciate the steady returns and AAA rating of notes on which the World Bank acts as treasurer.
The inaugural $1 billion bond from the International Finance Facility for Immunisation (IFFIm) was launched in 2006 to mature in November 2011. With a coupon of 5 percent, it’s one of 20 such bonds quoted on Reuters and at the end of last week was yielding around 1.4 percent. Most recently, IFFIm launched its first “kangaroo” bond in Australia, raising A$400 million with a five-year issue in November.
Banker Gary Smith, who helped set up a sterling offering for HSBC, says the demand is driven by more than altruism.
“It’s very popular in the institutional market, where people understand a good deal when they see it,” he says. “It’s not a donation; it’s an investment. But the mechanics of the product mean the money gets to GAVI sooner and that means immunisations can start sooner.”
IFFIm bonds also slot neatly into ethical funds — a growing business for the fund management industry — as testified by holders like Standard Life’s UK Ethical Corporate Bond Fund and CBF Church of England Funds.
Retail investors have got in on the act. The IFFIm offer from HSBC last year — sold to members of the public as a tax-free individual savings account (ISA), as well as to institutions — raised 266 million pounds, or five times more than expected. A separate retail offering in Japan last year raised $429 million.
IFFIm’s bonds are backed by the governments of Britain, France, Italy, Norway, Spain, the Netherlands, Sweden and South Africa, which have pledged a total of $5.9 billion to fund vaccines in the developing world over 23 years. Their long-term pledges will be used to repay the bonds. (Reporting by Ben Hirschler; Editing by Sara Ledwith)