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AFD highlights new French tier 1 opportunities

Development bank AFD's issue offered government-style risk with enhanced yield. That was a winning formula with investors, whose interest rapidly took the e300 million deal's book to e1.2 billion.

Agence Française de Développement (AFD), the state-owned French development bank, showed its commercial counterparts how it should be done when it issued e300 million of tier 1 eligible deeply subordinated notes.

AFD is only the second French lender to issue tier 1 directly. Before a change in the law in August 2003, French banks could only issue hybrid tier 1 through special purpose vehicles. The first bank to issue directly was Caisse Nationale des Caisses d?Epargne (CNCE), last November.

Tracing its origins to the central bank set up by the Free French government during World War II, AFD provides development aid loans and subsidies in Africa, Asia, the Caribbean, Lebanon and Palestine. It works in 54 countries and in nine French overseas departments and territories. Its foreign structural adjustement lending has grown since 2001.

AFD is a unique issuer. It is an établissement public à caractère industriel et commercial (Epic) which has no share capital and cannot legally become insolvent. But it is also a credit institution under the French monetary and financial code, regulated by the Commission Bancaire and subject to solvency and risk ratios.

Under its major concentration risk ratios, AFD cannot commit more than 25% of its capital to loans to a single credit.

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