MNI INTERVIEW: Chile Eyes Future Green Bonds After Record Sale

By Greg Quinn

     (MNI) - Chile may sell more foreign-currency green bonds or other debt

linked to environmental goals in coming years after its latest issue fetched

record-low yields, as long as it can find suitable projects to fund, a senior

finance official told MNI.

     The country will also continue broadening global participation in the local

currency bond market with a focus on nominal debt sales, Andres Perez, head of

international finance at Chile's finance ministry, said in an interview Tuesday.

     Chile made its first green bond sale in June and this year's

foreign-currency issues, concluded in January, were also green. The ministry

won't tap into strong global demand with extra sales this year because the

borrowing plan is subject to a government limit, and future green bond plans

depend partly on finding projects that qualify for the environmentally-friendly

label.

     "We are constantly evaluating different sets of instruments that can not

only allow us to signal our commitment with a given cause such as climate action

in this case, but also that allow us to tap into new pools of investors that in

turn allow us to further diversify our investor base," Perez said. "We could

look into further green bond issuance, but also we we'd like to explore other

types of sustainable bonds, because this is a growing market."

     But he noted: "The green bond market as it stands does depend in our case

on the issuer side on a sizable set of projects to fund."

     --UNUSUALLY FAVORABLE CONDITIONS

     Chile has already finished foreign-currency sales for 2020, taking

advantage of historically low yields despite the hit to its 2019 economic growth

from demonstrations seeking changes to the constitution and more generous public

programs. The government sold USD3.3 billion of green bonds in European and U.S.

markets last month, which the ministry said fetched record low yields of between

0.695% and 3.275% for debt due between 2031 and 2050.

     "International financial conditions are perhaps unusually favorable for

this stage in the global business cycle, but we also like to think this reflects

idiosyncratic structural factors that differentiate the Chilean economy with

respect to other EMs," Perez said.

     Chile brought in a USD5.5 billion package in December for unemployment

benefits, public works projects and savings for small businesses, and the

central bank also cut interest rates to aid growth. Santiago and other cities

were roiled starting in October after a small hike in public transport costs led

to major street protests. The government has scheduled a plebiscite to move

towards a new constitution for April.

     The government made a "transitory" move this year giving smaller companies

more room to sell debt in local currency markets by boosting its own

foreign-currency debt sales, Perez said. The detailed schedule for this year's

$5.4 billion of peso sales will probably be announced in the next few weeks, he

said.

     Business investment is the most "variable" part of the budget office's

lowered GDP growth estimate of 1.3% for this year, Perez said, adding there is

evidence of some stabilization around the end of last year. "Data since then has

been better than anticipated and has even reflected a rebound that tends to show

that the economy has been more resilient to these episodes of social unrest," he

said.

     While global development authorities credit Chile with being one of Latin

America's strongest economies and chopping the poverty rate to 6.4% from 31%

since 2000, an OECD outlook says "the root causes of the unrest need to be

tackled to boost households' well-being and strengthen business confidence,"

otherwise growth will be slower.

     "The policy response and the conviction to use the buffers is there," Perez

said. "We are still managing short-term impact of the social unrest, but we are

making sure that the progress that we are making on several fronts mitigate the

impact of the events on the economy."

     "This is something that's happening everywhere, we are seeing episodes in

France, Hong Kong and to varying degrees across the globe."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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