Philippines mulls sponsoring catastrophe bond issue

(Manila) REUTERS: The Philippines’ Finance Ministry said yesterday it was exploring a plan to sponsor a catastrophe bond issue, similar to the one launched by the World Bank early this year covering Latin American earthquakes.

The so-called cat bonds would help cover disaster-related risks in the country, the Department of Finance (DOF) said in a statement. The Southeast Asian country is often hit by earthquakes and strong typhoons.

The DOF said it was also looking at offering peso-denominated securities to offshore investors, such as Global Depositary Notes (GDN).

Finance Secretary Carlos Dominguez discussed the proposals with executives of Citigroup on the sidelines of the International Monetary Fund-World Bank meetings in Indonesia, the DOF said.

Under the cat bond proposal, the Philippine government would serve as sponsor, with the World Bank issuing the bond to qualified investors, the DOF said, without mentioning any issue size.

“Depending on the insurance coverage and its trigger, the Philippines as sponsor of the cat bonds will get paid the principal contributed by investors if a catastrophe occurs,” it said. Cat bonds are attractive to investors looking to diversify their portfolios such as hedge fund investors and asset managers, it said.

The World Bank launched a US $1.4 billion cat bond early this year covering Latin American earthquakes, the largest earthquake cat bond on record.

Dominguez also said the Philippines was open to Citi’s proposal on launching GDNs, which would help diversify the country’s investor profile and boost the liquidity available in the domestic economy.