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| Republic of Chile | |
| Value | $1 billion 10-year (and Ps162 billion retap of its Chilean peso denominated 2020s.) |
| Date | September 7 2011 |
| Bookrunners | Deutsche Bank and HSBC |
| return to the Latin America Deals of the Year index | |
However, it was Republic of Chile’s $1 billion bond in September that takes our second award. The $1 billion of 2021s was priced in volatile markets in early September, with the republic taking advantage of an intra-day window to achieve a record low all-in pricing of 3.35%, compared with the 3.89% it achieved the year before. On the same day, the Republic of Chile also re-tapped the Chilean peso-denominated 2020s for another $350 million equivalent. The focus of the re-tap was to minimize yield rather than achieve size and Chile priced the new notes at a yield of 4.4%. Both issues were managed by Deutsche Bank and HSBC.
“The placement of the new 10-year bond … reached a yield of 3.35%,” says Ignacio Briones, head of international finance at Chile’s finance ministry. “This was the lowest rate obtained by Chile and by any Latin American country in history. The reopening of the 10-year peso bond for $350 million was placed at a yield of 4.4%, 55 basis points below the local reference. This represented a saving for the Chilean state of around $20 million if compared with the funding cost in the domestic market. In addition, the reopening allowed an increase in the size of the first benchmark in peso, reaching approximately $900 million. This increased its liquidity and the quality of its price reference.”
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Ignacio Briones, Ministry of Finance, Chile |
Katia Bouazza, head of global capital markets Latin America at HSBC in New York, says the market conditions weren’t conducive to a record-breaking transaction: “The backdrop to this deal was very different from the 2010 transaction. There was heightened volatility caused by the uncertainty surrounding the US economy, its budgets and what the stimulus package would look like. And there was also – as there was in 2010 – volatility caused by Europe. Volatility was heightened to such an extent that even Chile, as a sovereign, had to watch the market carefully and make sure that it made the right decision on timing and that’s exactly what it did.” There were other high-grade issuers in the market but none executed so tightly. “That day saw a lot of other high-grade supply, with the average new-issue premium for those deals being close to the 25bp which has become the norm,” adds Bouazza. “Chile came in and really established itself with a very tight new-issue concession – with practically no new-issue premium and only curve extension.”
Part of the reason the sovereign was determined to return to the market was that it had promised investors during the roadshow for its 2010 bond that it would do so to facilitate a liquid curve. “Those placements are proof of our commitment to generate benchmarks that will facilitate the access to external financing for local companies,” says Briones. “This was also part of a contingency plan defined by the finance ministry, anticipating an eventual worsening of the international economic situation at that moment.”
