Wednesday, january 22, 2020

Chile obtains historical yields in euro and US dollar Green bond issuances

In line with the Treasury Bond Issuance Plan for 2020, the Ministry of Finance began the issuance of two green bonds in the European markets by a total amount of €1.44 billion on January, 21st. Following that, on January, 22nd, Chile returned to the US market with the issuances of another two green bonds totalling US$1.65 billion. The issuances in both currencies implied a new indebtedness by approximately US$3.3 billion. 

The euro denominated transactions, which included a portion to repurchase existing bonds, considered the issuance of a new 2040 green bond for €1,269 million and the reopening of the 2031 green bond for €694 million. The dollar denominated transactions considered issuances of a new 2032 green bond for US$750 million as well as the reopening of the 2050 green bond for US$900 million. 

The Minister of Finance, Ignacio Briones, highlighted that “the results of these transactions confirm the high degree of confidence of international investors in our country’s long-term outlook”. Regarding the result, the Minister noted that “these issuances take advantage of a good market momentum, which allowed us to finance at historically low yields.”

Regarding the green characteristics of the bonds, the Minister stated that “these issuances in foreign currency, as in 2019, have the green label. That is, the resources of these issuances will be used to fund assets and projects that contribute to climate action. This is aligned with the strong commitment and the global leadership that Chile, and particularly the Ministry of Finance, has on these topics”. 

The issuances were successful across several dimensions. First, all the transactions reached a historically low yield. In the case of the euro-denominated 2040 and the reopening of 2031 bonds, they reached 1.299% and 0.695%, respectively. In the case of the US dollar-denominated 2032 and the reopening of the bonds due in 2050, they reached 2.571% and 3.275%, respectively. It is important to note that the yield obtained for the 2050 US dollar bond is the lowest ever reached in Chile’s history at similar maturity. 

Secondly, the spreads respect to the benchmark in the case of euro were of 80 and 50 basis points for the bonds with maturities in 2040 and 2031, respectively. On the other hand, the spreads respect to the US treasury bonds in the case of US dollar-denominated bonds were of 75 and 105 basis points for the bonds with maturities in 2032 and 2050, compared to benchmark of equivalent maturities. The euro-denominated bonds achieved a demand of 2.0 times the offered amount as well as the US dollar-denominated bonds a demand of 2.2 times the offered amount. 

In the case of the euro transactions, the green investors participation was approximately 30% of the demand, and in the case of the US dollar it was around 13%. 

Considering the 2019 issuances of green bonds, Chile has issued US$6,228 million in green bonds (euro and US dollar-denominated). 

Use of Funds in Clean Transportation

All the projects included in the portfolio of these issuances are from Clean Transportation sector, as defined in the Green Bond Framework of the Republic of Chile. Specifically, it includes Metro projects, such as the construction of the future line 8 and the extension of line 4; as well as State Railways Company projects. The selection of these projects was in line with the Framework developed in 2019 and positively evaluated by Vigeo Eiris. The project portfolio is certified, as the 2019 portfolio, under the Climate Bonds Initiative standards, which is one of the main NGO specialized in the definition of global and verifiable standards for these financial instruments. It is worth noting that this certification is the highest market standard for green bonds. 

Treasury Bond Issuance Plan for 2020

The new issuances strengthen Chile’s position in green bond market. With these issuances, the Ministry completed the announced amount for external issuances in 2020, equivalent to US$3.3 billion.

The issuances were carried out by the Ministry of Finance team, the underwriting banks teams (for the euro transaction: BNP Paribas, Santander, and Societe Generale; and for the US dollar transaction: JP Morgan, Credit Agricole, and HSBC), and the legal international advisory of Cleary, Gottlieb, Steen & Hamilton and legal local advisory of Morales y Besa. 

According to the Treasury Bond Issuance Plan for 2020, in addition to the recently issued foreign currency denominated bonds for approximately US$3.3 billion (in new money), the plan considers local currency issuances for approximately US$5.4 billion.


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