World Bank's pandemic bond too little too late; needs to rethink structure

INVESTORS greeted the World Bank's first issuance of a pandemic bond in 2017 enthusiastically.

It marked the first time that World Bank bonds were used to finance efforts against infectious diseases. It was also the first time pandemic risk in low-income countries was transferred to capital markets. The issuance of bonds and swaps was oversubscribed by 200 per cent, and resulted in the risk transfer of US$425 million. Six viruses were covered, including coronaviruses. Coupon rates were also very attractive, more so in the current low-rate world. The higher-risk tranche paid 11 per cent and the lower-risk tranche 6.5 per cent, plus the six-month Libor ( London Inter-bank Offered Rate).

So, what was there not to like? Several things, as it turned out. The pandemic bond was patterned after catastrophe bonds, an established asset class. If the catastrophe to which an issuance is linked occurs, investors lose their capital; the bond is triggered and proceeds are disbursed to the country or party that is supposed to benefit. The Covid-19 outbreak was declared by the World Health Organization as a pandemic in mid-March when there were about 120,000 infections in 114 countries. The numbers have since exploded with over 2.6 million infections and more than 184,000 deaths.