Deals of the YEar awards
Chile made waves in global bond markets in 2022 with the first sustainability-linked bond ever offered by a sovereign issuer.
The $2.2 billion sustainability-linked bond, which wins the award for Sovereign ESG Deal of the Year, is noteworthy not only for its pioneering qualities; it was also issued at a challenging moment for markets, a fact which did not detract from its appeal to investors.
The Chilean government issued the bond on March 2, 2022, only a few weeks after global bond markets were thrown into turmoil in the wake of Russia’s invasion of Ukraine.
Despite the tough environment, the bond was more than four times oversubscribed, allowing Chile to increase the size of the deal from $1.5 billion to $2 billion. It also achieved a coupon of 4.346% - a fact which Chile's finance minister says "demonstrates the confidence in the Chilean economy and the country’s leadership in green finance."
The bonds, which mature in 2042, attracted sizable offers from emerging market investors and from real money accounts, according to BNP Paribas, which acted as joint bookrunners on the deal along with Credit Agricole CIB and Societe Generale.
Sixty-nine percent of the investors who purchased the bond were based in the US, and asset managers made up seven out of ten participants.
The bond’s two metrics are linked to environmental policies. One specifies that absolute greenhouse emissions must fall below 95 Metric tons of carbon dioxide equivalent (MtCO2e) a year by 2030, and total no more than 1,100 MtCO2e between 2020 and 2030.
The second target is to produce 60% of the country’s total electricity via non-conventional renewable energy sources. It means that investments will have to be made in energies such as wind power, small run-of-river hydro, biomass, biogas, geothermal, solar and ocean energy, as well as green hydrogen.
Non-compliance means that Chile will pay between 12.5bp and 25bp a year in penalties, up to a maximum of 200bp by the maturity of the bond.
“Chile is consistently interested in producing innovative financial tools that help face climate change impacts, as well as to create benchmarks for other issuers, supporting the ESG financial market in the process,” Marcel says. “We will continue these efforts towards exploring innovative alternatives with future SLB issuances.” LF
Joint Bookrunners, Sustainability Structuring Agents:
BNP Paribas; Credit Agricole; Societe Generale
Issuer's Legal Advisors: Linklaters; Morales y Besa
Bookrunner's Legal Advisors: Cleary Gottlieb; Garrigues Chile
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