Chile’s Ps.1.75 Trillion Sustainability-Linked Bonds Offering

July 24, 2023

Cleary Gottlieb represented BofA Securities Inc. (BofA), Citigroup Global Markets Inc. (Citi), Itau BBA USA Securities Inc. (Itau), and J.P. Morgan Securities LLC (JPM), as initial purchasers, in the global offering by the Republic of Chile (Chile) of its Chilean-law governed Ps.1.75 trillion 5.3% SLB bonds due 2037, which was comprised of a public offering in Chile and a concurrent offer and sale of bonds to eligible investors outside of Chile.

Chile offered investors outside of Chile Ps.720.2 billion of the bonds. BofA, Citi, Itau, and JPM acted as initial purchasers for the bonds sold to investors outside of Chile. The global offering launched on July 19, 2023, priced on July 20, 2023, and closed on July 24, 2023.

Pursuant to the terms of the bonds, Chile offered to pay step-up rates (15 or 30 basis points) if Chile does not achieve the following sustainability performance targets: annual absolute greenhouse gas emissions (GHG) of 95 metric tons of carbon dioxide, a GHG budget of 1,100 metric tons of carbon dioxide between 2020 and the end of 2030, and/or at least 40% of women on the boards of directors of companies reporting to the Chilean Financial Markets Commission by the end of 2031.

This is Chile’s first SLB issuance in Chilean pesos and it is also the first SLB issuance by a sovereign to incorporate a target tied to gender equality and women’s empowerment. Together with two other recent transactions in which Cleary also participated, the aggregate amount of SLB debt instruments issued by Chile reached the equivalent of $6.6 billion, which reaffirms Chile’s leadership in the issuance of ESG-related debt instruments and the undertaking of Chile to expand their set of debt instruments with ESG characteristics.

SLBs are a particular type of financial instrument designed to motivate issuers to meet ambitious sustainability targets, which are measured by key performance indicators (KPIs). Unlike green bonds and other sustainability-labeled bonds, the proceedings of these instruments are not directed to specific projects but the bond coupons are linked to the achievement of the predetermined sustainability targets. If a target is missed, the issuer will be subject to a financial penalty, usually in the form of a higher coupon.