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Chile Pays Historic Low Latin America Yield in Offering

Chile locked in historic low borrowing costs for a Latin American nation in the sale of $1.5 billion of dollar bonds, its first overseas debt offering in more than a year.

The country, rated Aa3 by Moody’s Investors Service, the highest grade in the region, priced 10-year bonds at a yield of 2.38 percent, or about 55 basis points more than U.S. Treasuries, and 30-year debt at a 75 basis-point spread, Chilean Finance Minister Felipe Larrain said yesterday. Similarly rated 10-year notes from South Korea yield 2.71 percent.

“When a country can sell debt at 2.4 percent, it’s reasonable, and not just reasonable but responsible, to go out and finance itself at those levels,” Larrain said at a press conference in Santiago, speaking by phone from New York. “Chile has the lowest financing cost in the history of Latin America and the lowest finance cost of any emerging-market country.”

Chile, the world’s largest producer of copper, has $3 billion of dollar bonds outstanding, $1 billion of which falls due in January, according to data compiled by Bloomberg.

“Chile has the ultimate scarcity value and is clearly one of the strongest credits in the world,” said Siobhan Morden, the head of Latin American fixed income at Jefferies & Co. Inc. in New York. “It has virtually no debt because it is one of the most fiscally responsible countries, so whenever it comes to the market there is huge appetite.”

The yield on Chile’s debt due in 2021 fell to a record low of 2.15 percent on Oct. 19. The government last sold international bonds in September 2011, paying 3.35 percent to borrow over 10 years. Larrain said the government lured about $10 billion of demand for the bonds sold yesterday.

Low Yield

The extra yield, or spread, investors demand to own Chile’s 2021 bonds instead of similar maturity Treasury bonds rose three basis points, or 0.03 percentage point, to 47 basis points in New York yesterday. Brazil has $2.925 billion of dollar bonds due in 2041 that traded yesterday at a yield of 106 basis points more than comparable U.S. Treasury debt, up 5 basis points from the previous day, according to data compiled by Bloomberg.

Chile’s peso appreciated 0.4 percent to 479.7 per U.S. dollar at the close of trading in Santiago and is up 8.3 percent this year, the second-biggest advancer in the world after Hungary’s forint among currencies tracked by Bloomberg.

Larrain said the government doesn’t want to have “an undesired effect on the exchange rate” and doesn’t plan to repatriate the proceeds.

Bank of America Corp., HSBC Holdings Plc and JPMorgan Chase & Co. managed the sale.

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