Tuesday, march 30, 2021

Chile issues USD1.5 billion in sustainable bonds in international markets

In the context of the Central Government’s 2021 debt-financing plan published in December-2020, the Ministry of Finance issued USD1.5 billion in sustainable bonds in international markets today. This is the Republic of Chile’s inaugural sustainable bond issuance. 

The bonds issued today are “sustainable,” according to the definition included in the Republic of Chile’s Sustainable Bond Framework, published by the Ministry of Finance in November-2020. This Framework establishes the guidelines to issue green, social, and sustainable bonds, according to ICMA standards. Sustainable bonds are debt instruments that finance a combination of green and social projects. 

The issuance reaffirms Chile’s leadership in thematic bonds, as the country remains the sole sovereign in the Americas to have issued green bonds, and since 2020 also began issuing social bonds. Considering today’s issuance, the Ministry of Finance has issued approximately USD14.4 billion in thematic bonds since 2019, of which USD7.7 billion are green bonds, USD5.2 billion are social bonds, and USD1.5 billion are the sustainable bonds issued today. Thematic bonds reach 15.5% of the Central Government’s outstanding debt stock. 

The Ministry of Finance has issued approximately USD5.75 billion in foreign currency denominated bonds during 2021, close to the planned amount in foreign currency for the calendar year. 

The issuance of Formosa bonds (listed in the Taipei Exchange) by the Ministry of Finance, reflects the Ministry’s efforts in recent years towards diversifying the investor base. These measures include the changes that facilitated the participation of non-residents in local currency issuances, and the issuance of green and social bonds, that broadened the investor base towards investors with ESG-mandates. 

Results of the Operation

The operation today consisted in the issuance of new dollar-denominated Treasury bonds for USD1.5 billion that mature in the year 2053. 

The operation reached a bid-to-cover ratio of 2.3 times, and yield of 3.5%, 112 basis points above the spread of the 30-year U.S. Treasury bond. This is the lowest yield achieved by a sovereign in a Formosa bond issuance, and also is the lowest spread reached among emerging economy sovereign issuances since the spread of the COVID-19 pandemic in March-2020. 

The bonds are issued under New York law and registered under the U.S. Regulator (SEC). 

The issuance is dual-listed in the London Stock Exchange and the Taipei Exchange. The latter contributed to broadening the investor base in Asia. In addition, this is the first sovereign and sustainable issuance listed in the Taipei Exchange. 

The issuance was led by the Public Debt Office at the Ministry of Finance, with the participation of underwriters (Goldman Sachs and Crédit Agricole), and structuring bank (Bank of America Merrill Lynch International), and the international legal advisory of Linklaters and domestic legal advisory of Morales y Besa. 

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