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Supply Chain Risk

CAT bond issuance reflects investor confidence in PH

The Philippines’ successful issuance of catastrophe-linked (CAT) bonds reflected global investors’ confidence not only in the country’s economy as a whole but also in its disaster-resiliency goals, the head of the Duterte administration’s economic team said.

“The successful float of the Philippines’ first ever insurance-linked security (ILS) or CAT bonds is one more proof of the strong investor support of the international business community for the Philippines amid the sweeping reforms being implemented by the Duterte administration to sustain the growth momentum while climate-proofing the country,” Finance Secretary Carlos G. Dominguez III said.

On Monday, the Philippine completed the issuance of $225 million in CAT bonds and listed these securities on the Singapore Stock Exchange (SGX).
The three-year CAT bonds were issued in two tranches—$150 million covering losses from tropical cyclones and $75 million in protection for losses from earthquakes.

The bonds were settled on Nov. 22 and will mature on Dec. 2, 2022.

The Treasury said the issuance “was met with strong investor interest for the new bonds as it will serve as a diversifier to the current pool of CAT bonds in the market.”

“This high level of investor confidence underlines not only the attractiveness of this ILS issuance but also these investors’ full backing for the disaster resilience agenda of the Duterte administration,” Dominguez said.

“This maiden ILS float is just one of the many innovative structures and projects that the government is undertaking to improve the resilience against natural calamities of the Philippines, which is among the world’s economies most vulnerable to climate change,” Dominguez added.

According to the Treasury, the issuance marked several firsts as it was the Philippines’ first CAT bond and the first in Asia; the first CAT bond listed on the Singapore bourse and the first listed on any Asian stock exchange, as well as the first World Bank-issued CAT bond listed in SGX.

“This instrument was years in the making and we are grateful to the World Bank and our structuring agents for ensuring a successful deal. We would also like to thank the Monetary Authority of Singapore (MAS) for their invaluable support of this endeavor and for the grant that they gave the Philippines to defray some of the expenses of this transaction. With our exposure to natural disasters, we cannot just sit idly by and do nothing. This instrument is a way for us to proactively protect the fiscal health of our government against natural disasters,” National Treasurer Rosalia V. de Leon said.

During the CAT bonds listing on SGX on Monday, World Bank country director for Brunei, Malaysia, the Philippines and Thailand Mara K. Warwick noted that “across its 7,641 islands, the country is exposed to multiple hazards, including typhoons, earthquakes, flooding, storm surges, tsunamis, volcanic eruptions and landslides” while 74 percent of Filipinos were “vulnerable to these natural hazards.”

“Poor families suffer the most from these calamities because they often depend on disaster-vulnerable livelihoods like farming and fishing and they live in unsafe areas like mountainsides and coastal zones. They are less able to secure their resources and homes and therefore lose more when disasters strike,” Warwick said.

“The CAT bond demonstrates once again the Philippines’ remarkable capability to develop innovative financial solutions to mitigate the impacts of extreme climate and weather-related events as well as major earthquakes,” according to Warwick.

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