Socially conscious bond investors will be targeted in a coming wave of vaccine bond deals that will seek to provide billions of dollars for the speedy rollout of Covid-19 shots for developing countries.
Dedicated vaccine bonds have been deployed before, but the immediate Covid-19 funding needs should lead to large amounts of new issuance in 2021.
"There is no doubt that investors value the Social label on public sector debt issuance and vaccination is the ultimate social project," said Philip Brown, Citi's head of sustainable debt capital markets, who helped to sell a vaccine bond in October.
"This is going to be an important theme in 2021...We need a bigger effort now, which involves huge sums of money up front."
The total cost of immunising the developing world is difficult to gauge, but is expected to be in the tens of billions of dollars.
The GAVI vaccine alliance said last week a joint facility with the World Health Organisation to buy and distribute Covid-19 shots in 92 poor countries needed nearly $5 billion next year to deliver 1.3 billion doses. That sum, on top of $2.1 billion already secured, may prove an underestimate if the per-dose cost proves higher than forecast.
Cyrus Ardalan, Board Chair of The International Finance Facility for Immunisation (IFFIm), which raises funding for GAVI, estimated that between a quarter and half of GAVI's Covid-19 funding needs would be met through IFFIm bonds.
He told Reuters he was "very confident" of at least one or two new bond launches in 2021.
"The key is in my mind to see how well GAVI is able to mobilise resources and secure vaccines so that we have an equitable distribution across countries globally," he said. "Emerging market countries are extremely vulnerable."
Double-A rated IFFIm is designed to roll forward future donor pledges into cash-in-hand for vaccination programmes today. It raised $500 million in October through its first vaccine benchmark bond in three years in a more than three times oversubscribed deal.
Geneva-based GAVI, which has secured hundreds of millions of doses of AstraZeneca's candidate vaccine, aims to pay for at least the first one billion doses of approved vaccines and is targeting 20% population coverage in poor countries.
The sums needed are huge.
International organisations estimated that vaccinating a fifth of Latin America and the Caribbean could cost more than $2 billion while rolling this out to priority populations in Africa would come to nearly $6 billion.
"We don't know what it is going to cost – the reason is that we don't know what the full complement of vaccines are, what the yield of those vaccines are at scale, whether they are going to be two dose vaccines, one dose vaccines, etc.," GAVI CEO, Seth Berkley, told reporters last week.
Social Bond Boom
Not just GAVI is turning to bond markets.
The African Development Bank (AfDB), the World Bank's International Finance Corporation and sovereigns such as Indonesia and Peru have all issued bonds in 2020 with proceeds tied to tackling Covid-19 and mitigating the economic downturn, although not specifically to pay for vaccines.
Social bond issuance has soared in 2020, thanks to growing interest in ethical investment and more governments and agencies wanting to use them to fund socially beneficial projects. Such bond sales hit $163.7 billion year-to-date, almost twelve times 2019 levels, based on Refinitiv data.
"We expect a large amount of social bond issuance in 2021. We expect the market to become more organised and it's going to become increasingly investor-led," said Credit Agricole's head of sustainable banking, Tanguy Claquin, who worked on IFFIm's October bond.
Given the cost of vaccinating the 3.5 billion people living in low and lower-middle income countries, bankers familiar with the sector said development banks such as the AfDB could start raising bond finance linked to vaccination rollouts.
Citi's Brown said launching entirely new funding institutions would take too much time.
"It makes sense to use market structures that are already in place."