Codelco Sells Debut Euro Bonds After European Yields Decline

Codelco sold 10-year bonds in its debut euro issue after central bank stimulus drove yields in the European currency to the lowest in 12 months.

The Chilean state-owned copper company said in a statement that it raised 600 million euros ($819 million) today. The bonds were priced to yield 93 basis points, or 0.93 percentage point, over midswaps, or 2.397 percent. They will be the only outstanding bonds in euros from a Chilean borrower.

Codelco will be allowed to retain $200 million of last year’s profit as the first part of Chilean government funding for investments to revamp aging copper mines, the Finance Ministry said yesterday in an e-mailed statement. The funds fall short of the $1.2 billion in capital urgently needed for this year, according to the Federation of Copper Workers.

“This issuance was planned before we knew of the government’s decision to capitalize Codelco with $200 million,” Ivan Arriagada Herrera, Codelco’s chief financial officer, said according to the company’s statement.

Codelco said it received orders for 2.4 times the amount of bonds on sale. Deutsche Bank AG, HSBC Holdings Plc and Banco Santander SA organized the offering.

The government’s capital injection is a stopgap measure as President Michelle Bachelet prepares a bill she has said will ensure the company’s long-term financing.

Dollar Bonds

The yield on the debt Codelco sold today is equivalent to 3.87 percent in dollars if the company exchanged the euro liability through cross-currency swaps. The yield on Codelco’s 2023 dollar bonds rose six basis points to 3.76 percent today.

Similarly rated euro bonds from McDonald’s Corp. and Philip Morris International Inc. yield 2 percent and 2.25 percent.

The yield on 10-year German bunds fell to a 12-month low of 1.24 percent on June 30 after the European Central Bank announced stimulus measures to fend off deflation.

Also debuting in the euro bond market is Indonesia, which is selling 1 billion euros of seven-year securities to finance a fiscal defict before the July 9 election.

At the same time, Chilean generator Colbun SA is offering $500 million of 10-year notes at a spread of 205 basis points over U.S. Treasuries, and Transelec SA, a Santiago-based operator of power transmission lines, hired banks to arrange meetings with investors before a possible sale of dollar bonds.

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