Tuesday, january 19, 2021

Chile reaches record low yields in green & social bond issuances

·         The Ministry of Finance issued green and social bonds in dollars and euros for a total of USD 4,250 million, with important demand from investors with ESG mandates.
·         Yields in the dollar and euro bonds maturing in 2031 and 2032 respectively, were the lowest ever in the Republic’s history.
·         The issuance of 40-year dollar and 30-year euro bonds are the longest dated bonds ever issued by the Republic, in the respective currencies, and contribute to raising the average maturity of Chile’s public debt.

The Ministry of Finance issued dollar and euro denominated bonds for a total of USD 4,250 million, as part of the Central Government’s 2021 financing plan.
 
Regarding the euro bonds, the issuances consisted in green and social bonds for a total of € 1,650 million (approximately USD 2 billion). The demand for these bonds reached € 4,130 million, 2.5 times the issued amount. Investors with ESG mandates accounted for 48.5% of the issued amount. Additional details of the euro bonds are described below:

  • Tap of the green bond maturing in 2031 for € 400 million at a yield of 0.399%, 60 basis points above the respective mid-swap rate. The spread was equivalent to a zero basis points concession (NIC) with respect to secondary market pricing. This is the lowest yield ever achieved by the Republic of Chile for a euro-denominated bond issuance.
     
  • New social bond maturing in 2051 for € 1,250 million at a yield of 1.298%, 125 basis points above the respective mid-swap rate. The spread is equivalent to a zero basis points concession (NIC) with respect to the estimated yield based on secondary market pricing. This is the Republic of Chile’s longest dated euro-denominated issuance, and contributes to the development of new benchmarks in international capital markets. 

In addition, the Republic of Chile issued a total of US$ 2,250 million in dollar-denominated green and social bonds. Demand totaled US$ 7,202 million, 3.2 times the issued amount. Additional details of the dollar bonds are described below:

  • Tap of the green bond maturing in 2032 for US$ 750 million at a yield of 1.962%, 87 basis points above the US Treasury yield. The spread is equivalent to a negative concession of 3 basis points (NIC) with respect to secondary market pricing. This is the lowest yield ever achieved by the Republic of Chile for a dollar denominated issuance at the respective maturity.
     
  • New social bond maturing in 2061 for US$ 1.5 billion at a yield of 3.116%, 127 basis points above the US Treasury yield. The spread is equivalent to a negative concession of 3 basis points (NIC) with respect to the estimated yield based on secondary market pricing. This is the Republic of Chile’s longest dated dollar-denominated issuance, and contributes to the development of new benchmarks in international capital markets.

Considering these issuances, the Republic of Chile since 2019 has issued approximately USD 12.6 billion in ESG thematic bonds, in euros, dollars, and pesos.
Minister of Finance, Ignacio Briones, highlighted the results: “Chile’s favorable access to international capital markets reflects their confidence in the country’s medium-term outlook.”
 
The projects in the green portfolio are related to energy efficiency of the Ministry of Urban Housing, green building projects of the Ministry of Public Works, and electric buses in the RED public transportation system, among others.
 
Finally, as in previous green bond issuances of the Republic of Chile, the new projects have been certified by Climate Bonds Initiative (CBI), the highest market standard.

Additional information on the green and social project portfolio and the respective certifications are available at: https://www.hacienda.cl/english/work-areas/international-finance/public-debt-office/sustainable-bonds  
 
Context of the Issuance
 
These issuances are part of the Central Government’s 2021 financing plan, for a total of up to US$ 19 billion, of which up to US$ 6 billion are planned in bonds denominated in foreign currency.

Separately, these issuances reflect the Ministry of Finance’s commitment with environmental and social factors. The projects to be financed with these instruments are aligned with the Republic of Chile’s Sustainable Bond Framework published in November 2020, favorably evaluated by Vigeo Eiris. The new green project portfolio was certified in line with CBI standards.

The issuance was executed by the Ministry of Finance’s team, underwriter banks (BNP Paribas, Citi, HSBC, JPMorgan and Santander), and the international legal counsel of Linklaters and national legal counsel of Morales y Besa. 

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