Republic of Chile Ps1 trillion 4.5% sovereign bond issue

Overview:

• The Republic of Chile has issued a Ps1 trillion 4.5% sovereign bond, due 2021, in the domestic and international capital markets. 
• BNP Paribas, Citigroup Global Markets, Goldman Sachs, and JPMorgan Securities acted as initial purchasers. 
• The bonds were created in dematerialized form, a way of electronic book keeping.
• This transaction was notable because it represented the first time that the Republic of Chile has issued Chilean peso denominated instruments to both the domestic and international markets.
• “It has been a goal for Chile to achieve more recognition and depth for the peso in the international markets. All governments  like to see their debt instruments traded as widely and deeply as possible because it provides valuable information from the market and a benchmark for domestic issuers,” explained Guillermo Morales, who led the deal at Morales & Besa, the firm which acted for the issuer.
• Morales also explained that Chile’s new tax law shifted the obligation to withhold taxes on interest payments out of bondholders or their custodians to the issuer. “Now all bonds whether issued by Chilean corporations or the Government require the issuer to withhold the applicable taxes on interest payments and everyone is subject to the same tax obligation, there is no longer any difference between resident and non-resident bondholders in this respect” Morales said.  
• When asked if the government would issue more bonds like these in the future Morales said: “As a country, there is a budget that has to be funded in pesos and there are projects and investments that have to be funded in pesos. I don’t know if those funding needs may require the Ministry of Finance to go back to the market for a new peso transaction. Moreover, sovereign bond transactions have not been principally driven by funding needs but rather by the need to have an impact in the market. If the government decides to launch a new peso denominated transaction, it will depend on a number of fiscal policy factors and the aim of making the peso bond market more liquid and deeper.” 

Rani Mehta - Journalist