IDB Revamps Sovereign Loan Pricing

The IDB has moved to make life easier for its sovereign clients with changes affecting some $36bn in debt, representing some 75% of the IDB’s sovereign loan portfolio. In a move one internal official describes as somewhat overdue, the multilateral is giving borrowers the option to receive the interest rate they pay on their loans in a more standardized format. Until this month, borrowers were simply shown a blanket rate they must pay without being able to see the components that determined it. As such, liability management, including the use of hedging, was made near impossible. With the new system, clients can elect to receive interest rates either as a spread over USD Libor, fixed rate, or a combination. “More and more, clients want to be able to do their own hedging and have been asking [the IDB] to take it to the next step,” says a senior IDB official involved in implementing the change. The move will not affect loans to projects and private sector clients, which have long benefitted from the newer system.