INTERVIEW: Chile taps into improving market conditions for emergency funding

INTERVIEW: Chile taps into improving market conditions for emergency funding

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Coronavirus Chile Andean Latin America US

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(Clarifies in paragraph two that the government's available emergency funding for the pandemic was increased to $17.1 billion from an original plan of $11.75 billion. Story reflects increased figure.)

A little more than three months ago Chile had not planned to issue more bonds in the international markets through the rest of the year. After Congress raised the debt ceiling by $4 billion to fund the response to the coronavirus pandemic, it was a matter of picking the right time to come back to investors for cash.

That time came Tuesday, and Chile raised $2 billion in a two-part bond sale in dollars and euros for a $17.1 billion fiscal package that equals roughly 7% of gross domestic product. When the plan was originally announced in late March it was for $11.75 billion in emergency spending that equaled roughly 4.7% of GDP.

"We saw that various sovereign issuers had come to market with good results in recent weeks, despite manifest volatility in international financial markets associated with the global expansion of COVID-19," said Andrés Pérez Morales, head of international finance at Chile's Finance Ministry. "But the decision to issue came from what we saw as a good opportunity in terms of rates and spreads, which had compressed a lot."

After the coronavirus spread to Latin America in March, Panama was the first sovereign issuer to return to the cross-border market with $2.5 billion in long-term notes. After that came Guatemala, Paraguay and Mexico.

Chile's northern neighbor, Peru, went to the bond market last month, pricing $2 billion in 10-year notes at 2.392% and $1 billion in five-year notes at 2.783%. In comparison, Chile's new 10-year issue in dollars on Tuesday priced to yield 2.454%.

"The financial results clearly reflect the confidence that international markets have in the economy," Pérez said. "It gives support to the economic plan we have recently implemented to fight the effects of the global expansion of COVID-19."

Countries with good economic buffers and sound macroeconomic policies have found financing at favorable rates, but even non-investment grade countries have been able to access the markets, despite greater challenges, Pérez said.

After Congress initially permitted the government to raise up to $8.7 billion in debt in 2020, the Finance Ministry sold €1.96 billion ($2.17 billion) and $1.65 billion worth of euro-denominated green bonds in January, appearing to wrap up its external financing plans for the year.

Plans changed after the coronavirus pandemic came to Chile, and Congress increased this year's debt shelf to $13 billion near the end of March to cover the government's response. Following Tuesday's deal, Pérez said Chile is again finished with its external financing plans for the year.

In the local market, however, the ministry has sold just $500 million in bonds this year. Chile's financing plans in the local market account for roughly 60% of the country's $13 billion debt shelf, he said.

"We have published a schedule of local bond sales for the second quarter, which will be executed through the central bank, for a total of about $4.9 billion dollars," Pérez said.