From IFR Asia

The World Bank has announced its first catastrophe bond for the Caribbean.

The $30m cat bond will be linked to earthquake and tropical cyclone risk in 16 Caribbean countries. The new issue will mature June 2017 and pays a coupon of 6.30% over six-month Libor, with a 6.50% floor.

With the new issue, the supranational is now able to provide reinsurance to the Caribbean Catastrophe Risk Insurance Facility, a risk-pooling facility that aims to limit the financial impact on its 16 Caribbean member governments resulting from catastrophic earthquakes and hurricanes by providing financial liquidity when a policy is triggered.

The World Bank first became active in the cat bond market in 2009, when it established the MultiCat Program that allows countries to access the cat bond market through a common platform.

The MultiCat Program, under which the World Bank acts as arranger but not issuer of the bonds, was used by the Government of Mexico in 2009 and again in 2012 for transactions that transferred earthquake and hurricane risk to the market.

Cat bonds are a high-yielding, insurance-linked debt instrument with a condition that if the issuer suffers a loss from a defined catastrophe, then the issuer’s obligation to pay interest and/or pay the principal is either deferred or forgiven.

Cat bonds are not linked to conditions that normally affect financial markets and so, for investors, they provide a good diversification of risk, along with higher yielding debt.

3CIF euro bond

Caisse Centrale du Credit Immobilier de France (3CIF) is selling its third euro bond of the year, capitalising on investor interest in an otherwise quiet primary bond market.

The Aa1/AA+ rated entity is marketing a €1bn four-year bond, and with books reaching over €1.7bn, leads were able to tighten price guidance substantially.

“3CIF is a good issuer to come to the market when it’s quiet because they have a government backing so there are very few risks involved,” said a syndicate official.

Leads Deutsche Bank, Goldman Sachs, Natixis and Societe Generale set the spread on the new issue at 16bp over the interpolated 1% May 2018 and 1% November 2018 French government bonds, with the new issue coming about 3bp over 3CIF’s curve, according to a syndicate banker.

This is at the tight end of guidance of 17bp area over OATs, which was revised from 18bp–20bp over. Initial price thoughts announced on Monday afternoon were at plus 20bp area.

“It makes sense for 3CIF to do a four-year deal because they’ve done just about every other maturity,” said the syndicate official.

This is the third bond sold by 3CIF this year. It was last in the market back in May, with a €1.5bn May 2017 at 19bp over OATs, a deal that tightened 2bp in the secondary market.

The housing loans provider, which had to be rescued by the French government in 2012, is guaranteed by the Republic of France.

While France has a number of agencies that benefit from strong state backing, such as Cades, Caisse de Refinancement de l’Habitat or Caisse des depots et Consignations, the last time it guaranteed bank issuance was through Societe de Financement de l’Economie Francaise (SFEF) in 2008–09.

However, in order to avoid systemic risk and ensure an orderly wind-down of an entity that was hit by a liquidity crisis in 2012, the French state is guaranteeing 3CIF’s new debt under the so-called Orderly Resolution process.

Up to €16bn of new issuance by 3CIF will be guaranteed, which will enable the group to fund all its needs during a resolution process that is expected to last 25 years.

3CIF’s requirements will mainly arise from the difference between existing long assets, such as housing loans, and the group’s short liabilities, such as CIF Euromortgage Obligations Foncieres and 3CIF’s senior unsecured debt.

South Africa hires lead managers on foreign currency bond

South Africa announced on Monday a mandate a foreign currency bond to be lead managed by Rand Merchant Bank, Absa/Barclays and Citigroup via a statement by the National Treasury.

The government has also hired Investec as a co-lead manager.

The statement adds that the issuance of a sukuk offering, for which South Africa hired banks in 2012, “remains in place as a medium-term project to access a new investor base”.

UK DMO auction

The UK DMO sold £4bn of 1.75% July 2019 Gilts at 2.055% against total bids of £6.1574bn, for a bid-to-cover ratio of 1.54 and a tail of 0.4bp, writes IFR’s Stephen Bough.

The last sale on June 3 was another solid tap, producing a bid-to-cover of 1.61 and tail of 0.3bp. The sale prior to this, on April 24, was also stress-free, with a bid-to-cover of 1.77 and tail of 0.4bp.

The auction cleared around 3–4 pence above the mid-price noted on screens at the close of bidding, when September Gilt futures were 109.69. This followed on from the last tap, when the auction cleared around 4–5 pence above the mid-price.

Relative value on the interpolated curve to the neighbouring fly of around 6bp and the fact that the line is still the cheapest by far in the five-year sector on an asset swap basis continue to attract support. We can, however, expect the line to start to richen now that it is benchmark size.

The DMO is next in the market on Tuesday July 8 with a tap of the 4% 2060 line. A tap of the 0.125% 2024 linker will take place on Tuesday July 15.

For more on this story go to:

http://www.ifrasia.com/ssa-world-bank-sells-first-catastrophe-bond/21153731.article

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