Inter-American Development bank (IDB) and Brazilian development bank BNDES agreed to convert part of a dollar-denominated loan into local currency using a new foreign exchange hedging tool launched by the US-based lender.
The transaction involved $437.5 million of a 20-year $1 billion loan that matures in 2030, IDB said Wednesday in a news release. The bank closed the operation 50 basis points below a conventional currency conversion, it said.
The local currency swap mechanism was first announced in February. IDB president Ilan Goldfajn said at the time the bank will provide $5.4 billion for a new Brazilian hedging instrument in order to spur the country’s green transition.
“This is the first time the Inter-American Development Bank is using this FX tool, and it is also the first time any multilateral development bank has executed this type of transaction,” an IDB official told LatinFinance. “We ran a pilot with BNDES, and the idea is now to offer this innovative tool to other borrowers.”
BNDES said in a statement that it expects the mechanism will help companies manage foreign exchange liabilities and fund long-term infrastructure projects.
“The inclusion of an exchange rate swap option reduces [funding] costs significantly and allows for a competitive interest rate, even for a strong issuer in reais as BNDES,” the US lender’s chief financial officer Gustavo de Rosa said in a statement.