Chile Follows Poland as Emerging Sovereigns Sell Euro Bonds

  • Chile priced 10-year euro benchmark at 110bps over midswaps
  • Also plans to offer dollar benchmark bonds at UST+130bps area

Chile returned to the euro-denominated bond market for the first time in eight months, the second developing nation to sell such notes this year.

The government priced 1.2 billion euros ($1.3 billion) in 10-year securities at 110 basis points above midswaps, according to a person familiar with the matter who asked not to be identified because he is not authorized to comment. Chile is also planning to offer 10-year bonds in dollars at a yield of around 130 basis points more than Treasuries. Poland raised 1.75 billion euros on Monday, braving deterioration in investor sentiment amid a global stock rout triggered by China.

“The more solid credits can come to market more or less when they want to in spite of the global markets turmoil,” Simon Quijano-Evans, the London-based chief emerging-market strategist at Commerzbank AG, said by e-mail. “I don’t think that they really need to rush to the market as most have already done more issuance than needed through the end of 2016.”

Chile is the highest-rated sovereign borrower in Latin America. Its dollar bonds returned 1.6 percent in the last 12 months, the most among investment-grade countries in the region, even as the price of copper, its biggest export, plunged to its lowest level since 2009. Copper and mining taxes account for about 8 percent of Chile’s government revenue.

Chile picked Bank of America Corp.’s Merrill Lynch unit, Citigroup Inc., HSBC Holdings Plc and Banco Santander SA to manage the bond sales. 

The yield on Chile’s euro-denominated debt due in 2025 rose 11 basis points on Tuesday to 1.7 percent as of 6:25 p.m. London time. The nation sold 950 million euros in 15-year bonds in May to yield 2.02 percent.

The bid spread on Chile’s existing 10-year dollar bonds rose eight basis points to 110 basis points. Chile is offering a one-day switch tender offer concurrent with the new sale.

Both the dollar and euro bonds offered investors a discount to existing debt, said Bianca Taylor, a sovereign analyst at Loomis Sayles & Co. in Boston. The country is able to borrow despite the slide in its principal export and the selloff in emerging-market assets because of its low debt burden and high rating, Taylor said.

“They have hardly any debt so anything they issue is going to get hoovered up, if not by dollar investors then by the local pension funds,” she said. “It’s a safe credit, the Latin American equivalent of cash.”

The 2025 dollar bonds would pay about 5.47 percent in pesos after swapping, compared to 4.58 percent 10-year yield in local currency.

Emerging-market currencies fell 2.7 percent this year as concerns about the Chinese economy has pushed commodity prices to an 11-year low.

Poland issued 1 billion euros of 10-year bonds at 1.542 percent, compared with 1.592 percent it paid in October for notes with the same maturity. It also sold 750 million euros of 20-year bonds at 2.471 percent on Monday.

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