THE PHILIPPINES is considering participation in the World Bank’s catastrophe (Cat) bonds to support financing of disaster risk management, the Department of Finance (DoF) said in a statement over the weekend.
The DoF said that the Philippines is “exploring” to be a sponsor of such bonds that will be offered by the World Bank.
This possibility was discussed in a meeting between Finance Secretary Carlos G. Dominguez III and top Citigroup, Inc. officials at the sidelines of the World Bank-International Monetary Fund Annual Meetings in Bali, Indonesia last week.
“… [T]he Philippines as sponsor of the Cat bonds will get paid the principal contributed by investors if a catastrophe occurs. But if there is no trigger, then investors would make a positive return on their investment in the bonds,” the DoF explained in its statement.
The Cat bond allows the sponsor to mitigate calamity financial risks. Since investors will be betting against the likelihood of the disaster, the investment carries higher rates.
It will be recalled that the Philippines last participated in a Cat bond sale in the aftermath of supertyphoon Haiyan, locally called Yolanda, that razed its way through the Visayas in November 2013.
According to the DoF, Citi vice-chairman for Corporate and Investment Banking Jay Collins said that the Cat bonds are attractive to hedge-fund investors and asset managers because these diversify their portfolio.
National Treasurer Rosalia V. De Leon said in a mobile phone message on Sunday that the government was “still discussing with WB” the possibility of the Philippines’ participation.
The World Bank last sold Cat bonds in February, raising $1.36 billion with Chile, Colombia, Peru and Mexico — the lender’s single largest single issuance of such debt.
The DoF said that Mr. Dominguez “welcomed” Citi’s proposal.
Mr. Dominguez said that he wants to get local government units (LGUs) involved since they are in a better position to assess disaster risks. “I want the local executives to participate. Right now, we have a local autonomy law and quite a number of the LGUs are liquid that they can buy the insurance,” Mr. Dominguez was quoted as saying.
The Finance chief also said that other Association of Southeast Asian Nations (ASEAN) member-states can also participate as sponsor “so that funds could be pooled to push down the price of insurance premiums for each country-participant.”
The DoF also said the Philippines was “open” to Citi’s proposal on launching Global Depositary Notes (GDNs), by which peso-denominated debt instruments are offered to offshore investors “to help diversify the country’s investor profile while enhancing the liquidity available in the domestic economy.”
GDNs would allow international institutional investors to access the Philippine domestic sovereign debt market through investments in peso-denominated debt instruments while trading in US dollar terms.
The DoF said such proposal is timely, given moves to reduce the withholding tax on interest income from 20% to 15% even for non-resident investors, as part of the fourth package of the tax reforms program pending in committee-level at the House of Representatives.
The DoF quoted Mr. Collins as saying that Citigroup is interested in “wanting to attract foreign buyers to the peso market to keep those yields down in this environment.”
It also said that it “will consider” the SDG bonds, to raise funds for projects that contribute to achieving the United Nations’ Sustainable Development Goals (SDG). — Elijah Joseph C. Tubayan

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