The Ministry of Economy and Finance (MEF) reported this Tuesday that the Uruguayan government ordered Credit Agricole, HSBC, JP Morgan and Santander to coordinate calls with local and international investors for the issuance of a new global bond in dollars indexed to climate change indicators 12 years (with annual amortizations in the last 3 years) subject to market conditions.
On this day, the presentation contact round began with potential investors. The Minister of Economy, Azucena Arbeleche, declared at a press conference on Tuesday that in the “long lights” approach carried out by the government, it was decided to incorporate environmental policy into economic policy a long time ago. “Not only that there is talk; it has to be done and concrete results are needed,” he said. The hierarch indicated that the Uruguayan economy is in a clear process of recovery and is credible.
Arbeleche specified that after the feedback obtained from potential investors in this round of contacts, the government will decide whether to go ahead (or not) with an “innovative” issuance of the public debt of the States.
The minister explained that the interest rate of this bond will be variable depending on the fulfillment of goals. “If Uruguay has good (environmental) behavior, it pays good interest. That allows resources to be redistributed to other areas,” Arbeleche said.
On the other hand, the head of the MEF indicated that it was important for the country to advance in this policy because the “environmental quality seal” will be required for production and export.
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 Y tariff improvements in trade.
The substantial difference between a conventional bond and a green bond is that green bonds are fixed-income debt instruments where the destination of the funds is used for projects that contribute to obtaining environmental benefits, for example, the installation of a wind farm.
Environment Minister Adrián Peña had explained that type of “bonus is tied to that compliance and Uruguay will be punished if it does not comply and rewarded if it does”. In addition, he added: “Beyond the financial, there is a signal that the country gives in that sense.”
The director of the Debt Management Unit of the Ministry of Economy, Herman Kamil, had anticipated 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 itself internationally.”
That is why 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).
