Tuesday, may 5, 2020

Chile achieves record demand in USD2 billion issuance in international markets

The Ministry of Finance issued Treasury bonds for a total of USD2 billion equivalent in international capital markets on May 5th, 2020. These consisted in a dual tranche transaction of i) USD1.458 billion in 2.45% Notes due 2031 and ii) reopening the outstanding Euro-denominated 1.625% Notes due 2025 for €500 million (equivalent to USD542 million). The issued amount is consistent with the debt issuance limits authorized by law for 2020. These resources will contribute to finance the National Budget as well as the Economic Emergency Plan. 

These issuances confirm that the Republic of Chile maintains favorable access to international capital markets in competitive terms, despite the rise in volatility associated to the global expansion of COVID-19. 

The dollar tranche consisted in the issuance of a new long 10-year bond due in 2031, for a total amount of USD1.458 billion at a yield of 2.454%, equivalent to a spread of 180bps over the 10-year US Treasury bond. This is the lowest spread among emerging economy sovereign issuances since March 1st, 2020. Demand peaked at USD8.24 billion, 5.7 times the offered amount, from over 250 investors from different types of institutions distributed across the globe. 

Regarding the euro tranche, the issuance consisted in a reopening of its outstanding Euro-denominated 1.625% Notes due 2025, for a total of €500 million, at a yield of 1.165%, equivalent to a spread of 150bps over the interpolated mid-swap rate. Demand reached a maximum of €3.5 billion, 7 times the offered amount, from over 190 investors from different types of institutions distributed across the globe. This is the first euro-denominated issuance by a non-European sovereign since March 1st, 2020. 

The favorable results of these issuances reflect the actions the Ministry of Finance has taken over time to diversify its sources of financing in international markets, in both dollars and euros, and, in addition, demonstrate the confidence investors have on the performance of the Chilean economy and its fiscal accounts. 

Considering these issuances, total bond issuances in foreign currency to date this year reach USD5.252 billion. These issuances complete the planned issuances in foreign currency for this year, and are part of the USD13 billion debt financing for 2020 approved by law. 

The issuances were executed by the Ministry of Finance’s team, underwriting banks (Scotiabank, Citi e Itaú), the international legal counsel of Cleary, Gottlieb, Steen & Hamilton, and the domestic legal counsel of Morales y Besa.

The resources in foreign currency obtained from these issuances will eventually be sold in the local foreign exchange market in the recently implemented auction system, according to the sovereign’s financing needs.



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