Thursday, june 27, 2019

Chile issues its first Euro Green Bond and meets record demand with a historically low rate

• Chile’s inaugural euro-denominated green bond met record demand and achieved a historically low rate of 0.83%, a 50-basis point spread against the benchmark interbank rate, matching the historically low spread achieved in 2017. 

• The euro-denominated Green Bond issuance due in 2031 totalled €861 million. The issuance received an initial demand of €4,015 million, 4.7 times the offered amount. 

• In line with the 2019 Issuance Plan announced in January of 2019, this transaction completes the total annual amount to be issued in foreign currency.

• Chile’s green bond issuances were the first in the Americas, reflecting the sovereign’s leading position in international finance issues. The Euro transaction stands out as being the first Sovereign Green Bond issuance in Euros issued by a non-European sovereign. 

Chile issued its first euro-denominated Green Bond due in 2031 for a total of €861 million, establishing a new benchmark in that market, on Tuesday June 25th. 

Similarly to the inaugural dollar-denominated green bond issuance executed a week earlier (June 17th, 2019), the euro issuance was also very successful. In fact, the yield of 0.83% is the lowest ever for a euro-denominated issuance by Chile, significantly below the 1.472% obtained in 2015. In addition to the low yield, the issuance met Chile’s historically lowest spread for a euro issuance of +50 basis points achieved in 2017. 

The yield obtained was 10 basis points below the interpolated yield based on secondary market pricing; that is a negative concession of 10 basis points. 

This issuance received a high demand, totalling €4,015 million, 4.7 times the offered amount, with a diversified demand across types of investors, particularly green investors, and by regions. 

The Minister of Finance, Felipe Larraín, highlighted the transaction stating “the issuance of this Green Bond in Euros, strengthens our firm commitment to act on climate change. Much like the positive results of the dollar-denominated Green Bond transaction, the results for the euro-denominated green bond issuance confirm the confidence of the international markets in our economy, achieving historically low yields, even below those estimated by market pricing”.

The demand was composed of more than 200 accounts of investors from Europe, Asia and the Americas, reflecting Chile’s robust macroeconomic outlook, and the significant marketing efforts made by the Ministry of Finance across the globe, with investor meetings (roadshows) in several continents, and efforts to keep traditional investors informed through newsletters and frequent contacts.

Context of the issuance 

Just like the US dollars’ issuance, this Green Bond was issued after the favourable evaluation of the Green Bond Framework by Vigeo Eiris last May. This international independent agency, specialized in environmental, social and governance (ESG) research, gave to Chile’s Green Bond Framework the highest degree of assurance regarding its contribution to sustainable development. In addition, the Green Bond project portfolio linked to this issuance has obtained the Climate Bond Initiative certification, an international NGO specialized in green issuance standards. 

The development of the Framework and the selection of the portfolio was the result of a multi-ministerial work, led by the Ministry of Finance, and the participation of the Ministries of Agriculture, Energy, Environment, Public Works and Transportations and Telecommunications, and the valuable support of the Inter-American Development Bank (IDB). 

In addition, minister Felipe Larraín explained that this transaction is set within the financing needs approved by the 2019 Budget Law. Likewise, he noted that “taking advantage of the good timing in the market, with low rates, and establishing a new benchmark for a 12-year euro-denominated bond, allowed us to further broaden our investor base, including more than 64 new accounts of ESG investors to whom 71% of the issuance was allocated”.

The minister valued the work performed by the Ministry of Finance’s team, the underwriter banks (JP. Morgan, Crédit Agricole CIB and Société Générale), and the legal counsel Cleary, Gottlieb, Steen and Hamilton, internationally, and Morales y Besa, locally. 

In line with the 2019 Issuance Plan presented in January of 2019, the euro-denominated green bond transaction concludes Chile’s sovereign bond issuances in foreign currency for the year, which totalled an equivalent of US$ 1.5 billion.


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