DOF explores other bond issuances

MANILA, Philippines — The Department of Finance is exploring the possibility of issuing different types of financial instruments, including catastrophe bonds, global depositary notes and sustainable development goals (SDG) bonds.

According to the DOF, Finance Secretary Carlos Dominguez welcomed a proposal from the Citi Group to help the government in sponsoring catastrophe bonds (Cat bonds).

The proposal was raised during a meeting between executives from the Citi Group and the DOF on the sidelines of the 2018 World Bank-International Monetary Fund Annual Meetings in Indonesia last week.

Under the plan, the World Bank will issue the bonds to qualified investors with the Philippine government serving as the sponsor, according to Jay Collins, Citi vice chairman for Corporate and Investment Banking.

Depending on the insurance coverage and its trigger, the Philippines will get paid the principal contributed by investors if a disaster or catastrophe occurs. If there is no trigger, Collins said investors would make a positive return on their investment in the bonds.

Collins said Cat bonds were attractive to hedge-fund investors and asset managers because these diversify their portfolio.

Earlier this year, the Citi Group helped draw up $1 billion worth of catastrophe bonds covering Chile, Colombia, Peru, and Mexico. It was the largest single issuance of Cat bonds ever facilitated by the World Bank.

Dominguez, for his part, said the issuance of Cat bonds could be included in the insurance packages the Duterte administration is now exploring with Lloyd’s of London and the World Bank to protect the state’s assets.

The finance chief said it was possible for the government to have multiple mechanisms to help cover the disaster-related risks both for the national government and local government units (LGUs).

On a broader scale, Dominguez said the Cat bond coverage could later be expanded to include other countries within the Association of Southeast Asian Nations (ASEAN), so that funds could be pooled to push down the cost of insurance premiums for each country-participant.

Meanwhile, Dominguez said the Philippines was also open to Citi’s proposal to launch global depositary notes (GDNs), in which peso-denominated debt instruments are offered to offshore investors to help diversity the country’s investor profile.

GDNs would allow international institutional investors to access the Philippine domestic sovereign debt market through investments in peso-denominated debt instruments while trading in dollar terms.

Dominguez said the proposal was timely, given that the Duterte administration is now pushing for tax reform that would reduce the withholding taxes paid by non-resident investors on their interest income.

The finance secretary also said the government would consider Citi’s suggestion on coming up with SDG-linked bonds.

SDG bonds were first launched by the World Bank last year to help raise financing support for projects in countries that want to achieve their Sustainable Development Goals, such as eradicating poverty or mitigating the effects of climate change.