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Philippines first in Asia for World Bank’s catastrophe-linked bonds

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THE WORLD BANK has issued three-year catastrophe-linked bonds (CAT) on behalf of the Philippines that could amount to $225 million worth of financial protection against earthquakes and tropical cyclones, the multilateral lender said in a statement on Monday.

The World Bank said the CAT securities consisted of two tranches, $75 million for losses from earthquakes and $150 million for losses from tropical cyclones.

The papers were issued under the International Bank for Reconstruction and Development’s (IBRD) capital-at-risk notes program that is designed to transfer risks related to natural disasters to capital markets, the lender said.

World Bank Vice-President and Treasurer Jingdong Hua said in the same statement that the CAT bonds for the Philippines were the “first to be sponsored by the government of an Asian country,” noting that “[m]any countries in Asia are highly vulnerable to natural disasters, which makes finding innovative, capital markets solutions a major priority to address the impact on their economies.”

The World Bank explained that an earthquake or a tropical cyclone will have to meet criteria set under bond terms to trigger payouts.

The two tranches had a settlement date of Nov. 22 and maturity date of Dec. 2, 2022. Coupon will be paid monthly. The bond coupon per annum is determined based on the “three-month USD Libor plus a (-0.12% per annum) funding margin plus the risk margin (subject to a minimum rate of interest equal to the risk margin)”.




National Treasurer Rosalia V. De Leon said in the same statement that the CAT bonds are a “vital building block” for the country’s long-term disaster risk and insurance strategy that the government has been developing since 2009.

“This instrument addresses the financing gap for immediate post-disaster needs for extremely high-risk events. It complements the government’s existing disaster risk financing mechanisms designed to ensure comprehensive financial protection for the Philippines,” Ms. De Leon explained.

Mara K. Warwick, World Bank country director for Brunei, Malaysia, Philippines and Thailand, said in the statement that “these CAT bonds allow the Philippines to transfer natural disaster risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike.”

GC Securities, a division of MMC Securities LLC, and Swiss Re were the joint structuring agents, joint bookrunners and joint managers for the transaction while Munich Re served as the joint structuring agent, placement agent and joint manager. AIR Worldwide acted as the risk modeler and calculation agent. — B. M. Laforga









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