21 October 2022

L-R: Samantha Naidoo, Alice Albright, Doris Herrera-Pol, Andrea Dore and Heike Reichelt in November 2006

Q&A with Doris Herrera-Pol and Heike Reichelt

As the world’s largest global development institution, the World Bank has a successful track record as an issuer and investor in the international capital markets. Since 2006, the World Bank has served as IFFIm’s Treasury Manager, leveraging its expertise and influence to help build IFFIm bonds into a model impact investment.

Doris Herrera-Pol, currently on IFFIm’s Board of Directors, and Heike Reichelt, Head of Investor Relations and Sustainable Finance, Capital Markets and Investments at the World Bank Treasury, were key members of the World Bank team who launched IFFIm’s first US$1 billion vaccine bond in November 2006. Since then, the IFFIm-Gavi-World Bank partnership has raised over $8 billion in financing through about 40 transactions in eight currencies, contributing to Gavi programmes in routine immunisation, health system strengthening, and in the last two years, expediting COVID-19 vaccine research and delivery to lower-income economies.

Doris Herrera-Pol and Heike Reichelt talk about the World Bank’s role in IFFIm’s success as IFFIm approaches its 16th anniversary.

Why is the World Bank important to IFFIm (and vice versa)?

DHP: As Treasury Manager, the World Bank gives IFFIm access to its vast investor franchise, and it has been for the most part of IFFIm’s existence its sole swap counterparty. The World Bank manages IFFIm’s finances under very prudential guidelines and risk limits, at par with its own and most of the other supranationals, which helps to support IFFIm’s strong credit rating.

IFFIm is important to the World Bank because the Bank’s mission is to reduce poverty and help improve the lives of people in poor countries. A key foundation of attaining this development goal is the protection of children’s health, and vaccination is at the heart of this goal. Without it, many children would die or lead lives in poor health. Vaccination is the sine qua non of development.

HR: The World Bank has expertise and relationships with banks, intermediaries and swap counterparties that IFFIm benefits from. For the World Bank, IFFIm was special because it was the first time the World Bank was tasked with issuing bonds for another entity. IFFIm is different from other trust funds we manage because of the capital markets access. IFFIm was also one of the first financial bond products that sparked investor interest in how their money could be used for specific purposes.

How did the partnership and structure come to be?

HR: Gordon Brown presented the international community with the idea of an IFF (International Financing Facility) as a way to frontload payments based on future promises from governments. Goldman Sachs worked on structuring it. Christopher Egerton-Warburton (a.k.a. Edge) and Susan McAdams on the World Bank side worked together, connected with the UK, a key partner, and other donors. Having the World Bank as Treasury Manager reinforced that IFFIm was more like a supranational than a special purpose funding vehicle. We put a lot of work into explaining IFFIm’s financial structure as well as its purpose and similarities to supranationals, and making sure IFFIm’s investor presentation, financial reports and website explained IFFIm’s full value. There were a lot of late nights working through excel sheets to try to explain IFFIm in simple ways. We had to design an investor presentation to use on road shows to explain this new issuer, IFFIm, to central bank and other investors who were used to seeing the World Bank.

IFFIm was launched at a good time, in 2006 before the global financial crisis changed everything. At the time, there was a lot of talk about innovative ways to fund development including leveraging donor countries’ ODA (official development assistance). Investors sensed that immunising children was a safe investment because, as one of the most cost-effective health interventions in the world and a necessity for global health, they could expect that it would always be a priority in a country’s ODA budget. So the vaccine purpose was tangible and had real value.

DHP: The governments behind IFFIm’s inception, led by the UK and France, wanted an efficient and effective structure for IFFIm; they didn’t want to create a traditional supranational that would require large budget and staffing. Instead, they wanted IFFIm to be a prototype/proof of concept/pilot for international financing facilities (IFFs) that could be deployed in a flexible and nimble manner to tackle specific development challenges (e.g., vaccination, health, education, infrastructure). The donors asked the World Bank whether it would be interested in handling IFFIm’s finances. An RFP was launched. The World Bank presented its proposal for fee-based financial management services, and it won the contract in 2005. With Gavi being responsible for the operational roll out of the immunisation programs that are funded by IFFIm’s bonds, and the World Bank being responsible for IFFIm’s financial management, IFFIm became an innovative and efficient development finance mechanism.

What was your role in getting the first vaccine bond on the market?

HR: I worked with the credit rating agencies on IFFIm’s credit rating and everything involving the investor outreach – from preparing materials to explain IFFIm to speaking with investors to make sure they knew of and could buy IFFIm bonds. I also worked with colleagues on the RFP to select banks and then work with them to design and implement the investor outreach strategy, and then ultimately on launching the first bond. It was intense work, but fun. We knew we were doing something important. Frontloading funds to vaccinate children so they would not die from preventable diseases was something we wanted to be part of, as stressful as it was.

DHP: It was a once in a lifetime experience for all of us. The World Bank launched its first bond issue in 1947, so none of the staff who joined the World Bank in the 70’s, 80’s and 90’s had gone through the experience of introducing a new supranational borrower to the world’s capital markets. It involved a tremendous amount of work, and it was thrilling. We strategized about different approaches to secure the best rating for IFFIm, started work with the rating agencies, approached banks seeking their advice and feedback (and eventually their proposals to IFFIm’s RFP) on target investor base and what the choices of markets, currencies, maturities and timing would be, and subsequently started pre-sounding investors directly to shape IFFIm’s funding strategy plan. There was a flurry of activity also around firming up the intricate contractual aspects of donors’ pledges, as well as around designing IFFIm’s financial policies with respect to funding and derivatives execution, investment management, currency and interest rate risk management, and the like.

IFFIm’s very successful first bond was launched less than a year after the World Bank was awarded IFFIm’s treasury management mandate. At the time I was heading the funding team of the Bank’s capital markets department, and I was privileged to participate and/or lead our approach to rating agencies, banks, investors and the media, as well as participate as needed in the dialogue with donors.

IFFIm was at the time a totally new concept. How did you explain it to investors?

DHP: We had many late nights in the office as well as in multi-city hopping roadshows. During IFFIm’s first Asian roadshow, for instance, within the space of a week we visited five cities, one city a day, and caught a plane to the next city in the evening. We’d arrive at our hotel at midnight and would make time to have a mojito before going to bed, hoping that our daily doses of lime, mint and rum would keep us healthy through the trip –which it did!

On a more serious note, one thing that really made these roadshows special was that for the first time I could recall, the institutional investors that we visited were asking questions beyond the usual risk-return characteristics of the credit and the bonds that IFFIm was preparing to launch. Alongside the usually thorough questions on IFFIm’s finances, investors were very enthused by and supportive of IFFIm’s vaccine mandate, and we got questions about the intended use of bond proceeds, the impact of the vaccine programs to be financed, and investors expressed a very strong interest on impact monitoring and reporting. As I see it, IFFIm really placed social purpose at the center of the stage that eventually grew to become the sustainable development bond market. IFFIm’s bonds coupled a compelling, very transparent and sharp, socially responsible mandate with attractive risk-adjusted financial returns.

HR: We worked with Gavi on marketing a bond transaction. Gavi was used to sharing a lot of information with the media, about all its activities, but there are strict rules with a bond transaction. There was a lot of sensitive information that was confidential until the bond was launched. To introduce IFFIm to the market, we had various teams on the road meeting investors. I was part of the road show team with Alan Gillespie who was the chair of IFFIm’s board at the time. We traveled to investors on the West Coast of the U.S. I also went to Asia with Doris and Edge and worked together with Bill Northfield as well. Gavi had connections with celebrities and held group events which also brought broad attention to that first deal.

It was new for us to go to investors and say, ‘you have the power to invest your money and save lives.’ The “purpose” thing was new at the time, and this direct link was attractive to mainstream investors who didn’t normally think about what their money was doing. Later on, green bonds did just that—having investors think about using money for specific purposes. You could say IFFIm planted that seed, as well.

Heike Reichelt is Head of Investor Relations and Sustainable Finance at the World Bank Treasury. The World Bank Treasury manages the funding programs for the World Bank's International Bank for Reconstruction and Development, (IBRD), the International Development Association (IDA), and the International Finance Facility for Immunisation (IFFIm).