news - FMO & TCX realize the first ever synthetic bond in Sierra Leonean Leone


FMO & TCX realize the first ever synthetic bond in Sierra Leonean Leone

February 10, 2022

Currency risk transferred from solar energy investments to western investors.  

On February 9, 2022, the Dutch development bank, FMO (Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.), issued the first ever synthetic Sierra Leonean Leone bond (SLL). TCX provided the Sierra Leone exposure.

The bond with an equivalent US$7,5 million countervalue (around 85 billion Sierra Leonean Leone), has a term of 36 months. FMO issued the notes with the support of ING who placed them with international investors seeking the diversification benefits and expected yield pickup of the Leone. The investors bought FMO's triple-A rated notes with a coupon that reflected the risk exposure of the Sierra Leonean market. This combination of AAA credit risk with frontier market risk and return represents an innovative asset class for which there is clear demand from global investors.

The original exposure emanated from renewable energy investments in Sierra Leone. Energy companies receive local currency income and by hedging the loan with TCX the lender could offer local currency. This prevents the project from exposure to foreign exchange risk.   

By now ‘selling’ this risk through a local currency bond, TCX reduces its exposure to Sierra Leone risk, allowing the fund to support more loans in Sierra Leonean Leone. Sierra Leone is amongst the world’s poorest countries, ranking 180th out of 187 in the Human Development Index. The term synthetic refers to the fact that the bond is denominated in Sierra Leonean Leone, but the reconciliation of all cash flows is in USD.

"This is a crucial transaction showing the way to financing the Sustainable Development Goals. Too often it is forgotten that the SDG’s must be financed in (synthetic) local currency. If not, we will create debt crises that delay the transition to a green economy. Just look at Africa’s debt fragility today” said Ruurd Brouwer at TCX. "With this issue, FMO shows that there is a way to transfer risk from borrowers that cannot and should not bear it, to investors that are looking for the risk and return of frontier currency debt. It allows Sierra Leonean investors to invest in their future in a financially sustainable way”

Huib-Jan de Ruijter, Chief Investment Officer of FMO: We are very happy to see investors’ continued interest in frontier currency risk, especially in fragile markets such as Sierra Leone. Foreign exchange rate volatility is frequently one of the greatest risks to the viability of local projects in countries with very thin or non-existent currency markets. Mobilizing international investors into these markets is an important tool to reduce the reliance of local borrowers on the dollar.

About TCX

TCX is a global development finance initiative which offers long-term currency swaps and forwards in 100+ financial markets where such products are not available or poorly accessible. The Fund started operations in 2007 and has since then provided hedging instruments with a total volume of USD 8.5 billion, spread over 3500+ transactions. Today the fund has a total exposure of USD 5 billion in 60 frontier-market currencies. By selling parts of this exposure to private investors it creates markets and gives frontier countries access to the international capital market. For more information: or TCX Website


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