Flash Fixed Income Report /
Chile

Chile to issue more green bonds

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    22 January 2020
    Published byTellimer Research

    Following yesterday's successful two-tranche EUR-denominated issue, Chile (A1/A+/A) is now going for more, this time in the USD-denominated bond market with another two-tranche transaction as follows:

    • Tranche A: A "benchmark size" (which we believe could be between US$1.0bn and US$1.5bn) in senior unsecured bonds due 2032, and with an initial price guidance of "T+95bps area". Given the spread tightening of the EUR-denominated bonds, we believe final pricing could tighten to a range of between T+90bps and the given guidance of T+95bps;
    • Tranche B: A tap of the 3.50% senior unsecured bonds due 2050, currently seen trading at cUS$105.275 (ALLQ) to yield c3.22% (g-spread: 102bps; z-spread: 133bps) and with an initial price guidance of "T+120bps area". Given where the currently-outstanding bonds are trading, we believe that the guidance given will hold.

    These new bonds will be "Green Bonds" and part of the proceeds, similar to the EUR-denominated bonds issued yesterday, will go into investing "an amount equal to the proceeds from the sale of the bonds into projects that may qualify as eligible green expenditures under Chile's Green Bond Framework."

    Pricing is expected today.

    Meanwhile, the euro-denominated bonds from yesterday performed as follows:

    • Tranche A: A tap of EUR693.685mn (over the then currently outstanding EUR861.0mn) senior unsecured bonds, 0.83% coupon Green Bonds, due 2031, priced at EUR101.477 to yield 0.695% or MS+50bps, equivalent to +94.3bps over the 0% 2030 bonds. The tap brought the total outstanding amount of these bonds to EUR1.554bn; the initial price guidance was MS+50bps, which was set as final at the time of the announcement.

      We said yesterday that we believed the spread was fair as it mirrored the z-spread of the then currently outstanding bond's trading level. However, the issuer updated its guidance for the 2031 tap to MS+65 bps, changing it to MS+50bps and then again to MS+55bps. In the end, the EUR693.685mn tap was re-offered at EUR101.477 for a spread of MS+50bps to yield 0.695%.

    • Tranche B: EUR1.269bn (we estimated this to amount to EUR1.0bn), 1.25% senior unsecured bonds due 2040, which priced at 1.299% or MS+80bps, equivalent to 126.4bps over the 4.25% 2039 bonds. The initial price guidance was MS+80bps (set as final at the time of the announcement). 

      For reference and valuation purposes, we had chosen Chile's EUR1.65bn, 1.875% senior unsecured bonds due 2030, currently seen trading at cEUR113.33 (ALLQ) to yield c0.55% (g-spread: 80bps; z-spread: 44bps), making the new 20-year bonds slightly more attractive than Tranche A, but still within the range that we consider to be fair value ie, MS+70bps to MS+75bps. Tranche B finally priced with a re-offer price of EUR99.142 representing a spread of MS+80bps equivalent to a yield of 1.299%.