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World Bank's US$225m in catastrophe-linked bonds listed on SGX

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The World Bank Group's International Bank for Reconstruction and Development (IBRD) has issued two tranches of catastrophe-linked bonds totalling US$225 million.

Singapore

THE World Bank Group's International Bank for Reconstruction and Development (IBRD) has issued two tranches of catastrophe-linked bonds totalling US$225 million.

For the next three years, the bonds will provide the Philippines with financial protection of up to US$75 million for losses from earthquakes and US$150 million against losses from tropical cyclones.

They were listed on the Singapore Exchange (SGX) on Monday at noon.

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These are the first World Bank bonds listed in Singapore, the first catastrophe bonds listed on an Asian exchange, and the first catastrophe bonds sponsored by an Asian country's government, the World Bank noted.

The three-year bonds both come due on Dec 2, 2022, and will pay monthly coupons.

The US$75 million earthquake bond carries a coupon which is the sum of the prevailing three-month US-dollar Libor (London interbank offered rate) plus a funding margin of 0.12 per cent per annum and a risk margin of 5.5 per cent per annum.

The US$150 million cyclone bond carries a coupon which is the sum of the prevailing three-month USD Libor plus a funding margin of 0.12 per cent per annum and a risk margin of 5.65 per cent per annum.

The bonds were issued under IBRD's "capital at risk" notes programme, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets.

Payouts are triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms.

The bulk of the new Philippine catastrophe bonds was allocated to investors in Europe (58 per cent), followed by North America (25 per cent), Asia (13 per cent), and Bermuda (4 per cent), the World Bank Group said.

In terms of investor type, asset managers took up 50 per cent of the deal. Some 29 per cent of the bonds went to insurance-linked securities funds, 13 per cent were allocated to insurers and reinsurers, while 8 per cent went to pension funds.

GC Securities, a division of MMC Securities LLC, and Swiss Re were joint structuring agents, joint bookrunners and joint managers. Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide is the risk modeller and calculation agent.

The Philippines is one of the most disaster-prone countries in the world. In 2013, Typhoon Yolanda caused the loss of 6,300 lives and about US$12.9 billion in damages, or 4.7 per cent of the nation's gross domestic product.

Rosalia de Leon, national treasurer of the Philippines, said on Monday that the new bonds will address the financing gap for immediate post-disaster needs for extremely high-risk events. They also complement the government's existing disaster risk financing mechanisms.

Hua Jingdong, World Bank vice-president and treasurer, said: "Many 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."

IBRD lends to governments of middle-income and creditworthy low-income countries. It is one of five organisations under the World Bank Group.