MercoPress. South Atlantic News Agency

First sale of Chilean sovereign bonds to finance earthquake rebuilding efforts

Finance Minister Felipe Larrain

Chile hired JPMorgan Chase & Co, Citigroup Inc. and HSBC Holdings Plc to arrange the country’s first international bond sale in six years, Finance Minister Felipe Larrain announced Friday. Proceeds from the 10-year bonds will help finance rebuilding efforts after the February earthquake.

The government plans to sell 1 billion of the securities in dollars and 500 million “denominated in pesos,” Chile’s first global peso bond sale, Larrain, said. Chile’s two outstanding dollar bonds mature in 2012 and 2013. The sale aims to set new benchmarks for Chilean issuers, he said.

“Chile has been absent from the debt markets for six years and this is our return,” Larrain said. “It’s impossible to predict the yield because that depends on market conditions in the moment. But we have very favourable conditions for the issuance in dollars and that in pesos.”

The U.S. Securities and Exchange Commission rendered effective a 3 billion USD debt shelf filed by Chilean authorities on June 15, he said. Chile is seeking financing for repairs after the Feb. 27 quake caused as much as 30 billion of damage.

Chile is the highest-rated sovereign borrower in Latin America. Moody’s Investors Service in June lifted its rating to Aa3, the fourth-highest. Standard & Poor’s ranks it one level lower at A+ and Fitch Ratings grades it one level lower still at A.

Chile’s five-year credit-default swap spread fell four basis points to 90 basis points today, according to CMA Datavision in London, close to AAA-rated Austria’s 88 basis- point spread and less than Belgium’s 106 basis points.

The spread on Chilean sovereign bonds has widened 24 basis points to 136 basis points from 112 basis points on April 23, when Larrain announced the bond sales, according to JPMorgan indexes.

With a GDP of 240 billion USD Chile had in May 2010 a gross foreign debt of 76 billion US dollars, 2.6% higher than in December 2009 and 19.35% higher than in May 2009 (63.6 billion USD), according to the Central bank.

Private gross debt is split up as follows: 15.4 billion, banks; 46.7 billion corporations and 110 million individuals and NGO.

The public sector debt includes 2.5 billion USD from central government; 1.35 billion monetary authorities; 521 million government banks and 9.4 billion the rest.

Long term debt totals 58 billion USD, of which 11.3 billion from the government sector and 46.8 the private sector.

Short term debt totalled 17.8 billion USD, of which 2.5 billion the public sector and the rest the private sector, 15.4 billion USD.

Finally taking into account the bonds market, gross external debt is 76.6 billion USD of which 14.2 from the public sector and 62.5 billion the private sector.