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Thursday, June 20 de 2019

Chile issues its first Green Bond and meets record demand with a historically low rate

• Chile's first sovereign green bond issuance met record demand from global markets and a historically low yield (3.53%). By becoming the first country in the Americas to issue this type of bond, Chile strengthens its leading role in international finance.

• The dollar-denominated Green Bond issuance due in 2050 totalled US$ 1.42 billion, of which US$ 523 million were new money, and the remaining US$ 895 million were for liability management, with the objective of strengthening the new reference and adjusting the maturity profile.

• As had been announced by the Minister of Finance, Felipe Larraín, a euro-denominated Green Bond issuance is expected in the coming weeks.

 

Last Monday, June 17th, Chile issued its first dollar-denominated sovereign Green Bond due in 2050 for a total of US$ 1.42 billion, establishing a new benchmark in that market.

The operation was successful across several criteria. First, the 3.53% yield is the lowest ever obtained by Chile for a similar tenor, even lower than the 3.71% yield of the 2012 issuance. The rate is also the lowest for emerging economy issuances this year.

Second, the spread of 95 basis points over the US Treasury rate was the lowest among emerging economy issuances for similar maturities.

Third, this is the first Chilean foreign currency issuance with a yield below the interpolated from the secondary market; that is, a negative rate concession of 5 basis points.

Finally, the operation attracted a very high initial demand, totalling US$ 6.7 billion, 12.8 times more than the amount offered, with a diversified demand across types of investors and by region.

The Minister of Finance, Felipe Larraín, highlighted the success of the operation stating "the issuance of our first Green Bond demonstrates our strong commitment to move forward with concrete actions to face climate change. In an international context of greater financial turbulence, global markets have rewarded us with historically low rates, even below those estimated by secondary market pricing." 

At the end of the transaction, the demand was composed of more than 260 accounts of investors from Europe, Asia, and the Americas, reflecting Chile’s robust macroeconomic outlook, and the significant marketing efforts made by the Ministry of Finance across the globe, with investor meetings (roadshows) in several continents, and efforts to keep traditional investors informed through newsletters and frequent contacts.

Context of the Issuance

The green bond was issued after the favourable evaluation of the Ministry’s "Green Bond Framework" (Framework) by Vigeo Eiris last May. This international independent agency, specialized in research of environmental, social and governance issues (ESG), gave the Framework the highest assurance regarding the contribution of the bond to sustainable development. In addition, the project portfolio associated with this issuance obtained the Climate Bond Initiative (CBI) certification, an international organization specializing in green issuance standards.

The development of the Framework and the selection of the portfolio is the result of a multi-ministerial work led by the Ministry of Finance, and the participation of the Ministries of Agriculture, Energy, Environment, Public Works, and Transportation, with the valuable support of the Inter-American Development Bank (IDB).

In addition, Minister Felipe Larraín explained that the debt issuance is part of the financing needs approved by the 2019 Budget Law. He also stated that "the issuance allowed us to take advantage of the favourable market momentum, with low yields, and establishing a new 31-year green bond benchmark, and further increase our investor base by including roughly forty new specialized green investor accounts."

The Minister of Finance added that "of the total amount issued, US$ 895 million were used for a liability management operation, through a repurchase of bonds with a shorter maturity, aiming to strengthen the new 31-year benchmark, and to adjust our maturity profile ".

The Minister valued the work carried out by the Ministry of Finance’s team, the underwriter banks (BNP Paribas, Citibank and HSBC), and the legal counsels Cleary, Gottlieb, Steen and Hamilton, internationally, and Morales y Besa, locally.

As was announced by the Minister of Finance, a new issue of sovereign green bonds in euros is planned in the coming weeks, completing the total amount of new issuances in foreign currency equivalent to US$ 1.5 billion for 2019.

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