2018 - 2019 Edition of Citi Perspectives for the Public Sector

Citi Perspectives for the Public Sector |  2018-2019 33 and obligations. For countries with commodity risk, borrowers can embed derivatives into MDB loans so that interest expenses move in correlation with commodity prices. 3. Catastrophe bonds to hedge natural disaster risk. Citi supports sovereigns in the sponsorship and issuance of disaster-linked securities, which provide large volumes of rapid liquidity in the event of a pre-defined triggering event. The most appropriate mix of tools for a country depends on its economic, political, structural and geographic specificities. It also depends on a government’s willingness and capacity to implement optimal solutions. Committing funds in the present to mitigate the effects of future risks is often challenging, particularly for governments operating tight budgets and facing myriad political pressures at home. However, experience and history demonstrate that prudent investments in risk reduction pay off in time. In 2018, Citi assisted Ghana and Senegal to extend their debt service schedules and pre-fund government operations. Ghana refinanced 93.6% of its $750 million 9.250% short-dated note due 2022 with a dual-tranche bond offering consisting of a $1 billion 10-year WAL 7.625% tranche and a $1 billion 30-year WAL 8.627% tranche. Senegal exchanged 40% of its $500 million 8.750% note due 2021 with a dual-tranche bond comprised of a €1 billion, 9-year WAL, 4.750% tranche and a $1 billion, 29-year WAL, 6.750%. In each case, the 30- year components are the longest-dated bonds either country has ever issued. Citi’s Sovereign Advisory team is ready to work with our sovereign partners to diagnose areas of vulnerability, recommend strategies and deliver focused, tailored solutions to help build resilience against the risks of the new economic environment. Our solutions can assist sub-sovereign governments and public sector enterprises in addressing their risks as well. Proactive approaches to managing and mitigating risks contribute to protecting credit ratings and may additionally provide the building blocks for improving ratings over time at a faster pace than would otherwise be the case.