Chile has ambitions to be the first Latin American sovereign to issue Green bonds as part of a broader environmental strategy and as it looks to widen the country’s investor base. The deal could cover all or part of the approximately US$1.5bn in foreign currency debt expected to be raised this year by the South American country.
It is also part of a strategic effort by the relatively new administration of Sebastian Pinera, who took the office of president for a second time just over a year ago.
During the IMF meetings, Chile was one of 20 countries that launched a coalition of finance ministers to promote action on climate change through fiscal policy and the use of public finances. Chile is also hosting in December a United Nations’ climate change conference.
“It is important from the perspective of our administration and our efforts that are Green,” said Pinera.
Proceeds from a Green bond will not necessarily be earmarked for Green projects, but Chile would commit to a published Green bond framework to use funds at the Treasury in this way.
“We would monitor that the expenditures, which are in line with our Green bond framework, are done over time. And if the sovereign wants to reopen the bond it is always within the framework. Once you set it up, it becomes a lot easier,” he said.
Indeed, the work and the upfront fixed costs to issuing the first Green bond can be substantial, and this may explain why Chile has yet to tap the international bond markets this year, say some bankers.
The government has Congressional authorization to issue roughly US$9bn in debt this year, down from US$9.5bn in 2018 year, but it only plans to place US$8.7bn of that as part of the administration’s efforts to be fiscally responsible, said Pinera.
The vast majority of that amount, about US$7.2bn, will take the form of local currency bonds, though about US$1.5bn equivalent could be Euroclearable peso bonds sold in part to foreign accounts. When Chile does go to the international market, Pinera suggests it will stick to its usual stomping grounds, namely dollars, euros or Euroclearable pesos.
“We haven’t announced details yet of the composition of the currencies, but we do have yield curves developed in dollars and euros,” he said. “The bar for issuing in a new currency is relatively high.