Today, Chile issued its first sovereign green bond in dollars due in 2050 for US $1,418 million, establishing a new benchmark in that market.
The operation was very successful in several dimensions. First, the interest rate of 3.53% is the lowest obtained by Chile with a similar term in its history, surpassing the rate of 3.71% of the issue of 2012. The rate of allocation to similar terms is also the most falls among emerging economies during the year.
Second, the spread of 95 basis points over the US Treasury rate was also the lowest among emerging economies for issues at the same time.
Third, it should be noted that this is the first time that the allocation rate in an issue in foreign currency is lower than that estimated with information from the secondary market; that is, a negative rate concession of 5 basis points.
Finally, the operation attracted a high initial demand, totaling US $ 6.7 billion, 12.8 times more than the amount offered, with diversified demand not only by type of investor but also by geography.
The Minister of Finance, Felipe Larraín, highlighted the operation and its results and noted that “the issuance of our first green bond demonstrates our firm commitment to move forward with concrete actions in the face of climate change. In an international context of greater financial turbulence, the confidence of the international markets in our country stands out, when rewarding with historically low rates, even below those equivalent of the secondary market.”
At the adjudication rate, the demand was composed of more than 260 accounts of investors from Europe, Asia, and the entire American continent. This reflects both the macroeconomic strength of the country and the successful result of the marketing efforts made by the Ministry of Finance in various regions, through visits to investors (roadshows), in order to attract international interest. These efforts complement the efforts to keep traditional investors informed through newsletters and frequent contacts.
The green bond was issued after obtaining a positive evaluation of the so-called “Green Framework”, which was successfully evaluated at the end of May by Vigeo Eiris.
This international independent agency, specializing in research on environmental, social and governance issues (ESG), gave the Green Framework the highest degree of security with respect to the contribution of the bonds envisaged for sustainable development. In addition, the project portfolio associated with this issue has obtained the Climate Bond Initiative (CBI) certification, an international organization specializing in green emission standards.
It should be remembered that the development of the “Green Frame” and the selection of the portfolio is the result of a multi-ministerial work led by the Ministry of Finance, and in which the Ministries of Agriculture, Energy, Environment, Public Works, and Transportation, and with the valuable support of the Inter-American Development Bank (IDB).
In addition, Minister Felipe Larraín explained that this operation is part of the authorization provided by the Budget Law 2019 to gather resources for the nation and finance the budget. He also noted that the objective of “taking advantage of the good market moment, with low interest rates, and establishing a new benchmark of 31-year green bonds, allowed us to fully meet the expectations of increasing our investor base by including close to Forty new green investor accounts (ESG).”
The head of public finances added that “of the total amount issued, US $895 million were used for a liability management operation, through an exchange offer or repurchase of bonds with shorter maturity, with the objective of strengthening the new reference to 31 years of this issue, and adjust the expiration profile.”
The authority valued the work carried out by the team of the Ministry of Finance, the placement banks of the operation (BNP Paribas, Citibank and HSBC), and the legal advisers Cleary, Gottlieb, Steen and Hamilton, internationally, and Morales and Kiss, locally.
In line with what was previously announced by the Minister of Finance, in the coming weeks a new issue of sovereign green bonds in euros is planned, thus completing the total amount of new indebtedness in foreign currency during 2019 equivalent to US $ 1,500 million.
Source BNAmericas