Uruguay placed this Thursday its first global bond in dollars indexed to Climate Change Indicators (BIICC) with final maturity in October 2034 -repayable in three annual payments in 2032, 2033 and 2034-, for an amount of US$ 1,500 million.
The operation also included a repurchase offer of global bonds in dollars maturing in the years 2024, 2027 and 2031.
Of the US$1.5 billion, US$1.0 billion was for cash, with the remainder being issued to repurchase eligible bonds.
The issue was made at a yield of 5.935% per year (and a coupon of 5.75% per year), corresponding to a spread of 170 basis points with respect to the benchmark US Treasury bond.
The demand far exceeded the amount issuedwith a joint order book that, at its maximum, reached US$ 3,960 million, according to the Debt Management Unit of the Ministry of Economy and Finance (MEF).
“In today’s times with a somewhat challenging global scenario and for what is the risk spread that Uruguay has, it is a good result”said to The Observer Santiago Jauregui de Gletir Stockbroker.
“I highlight the moment because it is a super challenging moment to broadcast. That the government has been able to place what it placed at an interesting spread is a very good sign without a doubt. And the type of bonus is another pretty good plus”, highlighted Jauregui.
The consolidated order book was made up of 188 investors from the United States, Europe, Asia, Uruguay and other Latin American countries. A total of approximately 40 accounts participated in a Uruguay operation for the first time, many of them with a specific focus on sustainable bond issues.
How is this bonus paid?
The new bond is tied to environmental indicators. The first indicator is to achieve a 50% reduction in greenhouse gases per unit of real GDP by 2025 relative to 1990, which is the reference year. The second indicator to meet is the maintenance of 100% of the native forest area compared to 2012. This goal is also to 2025.
In 2027, compliance with the pre-established goals will be evaluated. Each overcompliance or noncompliance implies a movement of 15 basis points in the cost of financing or the rate to be paid to investors.
https://www.elobservador.com.uy/nota/suben-los-combustibles-en-noviembre-el-mercado-internacional-juega-en-contra-2022101915360
For example, if Uruguay exceeds the goals (reduces greenhouse gases by 52% and increases the area of native forest by 3% compared to the reference years), the interest rate that has to be paid to investors falls by 30 basis points (15 for each objective) from October 2027 until expiration.
And if it falls short of the objective in the two previously set targets, the interest rate to be paid on the bond rises by 30 basis points from October 2027 until its maturity (2034).
The government understands that environmental sustainability is already related to global finance and the way of doing business. This paradigm shift generates other challenges and for this reason, in different areas, it has raised the possibility that countries with better environmental behavior obtain benefits in access to international financing and tariff improvements in trade.
The director of the Debt Management Unit of the Ministry of Economy, Herman Kamil, had advanced in March of this year that “the MEF established the priority of aligning the government’s financing strategy with the pursuit of climate objectives with which the country has already committed internationally.”
For this reason, the MEF advanced with designing a sovereign bond that explicitly incorporates the country’s objectives in reducing greenhouse gases throughout the economy, with the goals already established under the Paris Agreement (in 2015).
