Chile’s UF24 Million and Ps.1.75 Trillion Sustainability-Linked Offerings

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 offerings by the Republic of Chile (Chile) of its Chilean-law governed Unidades de Fomento (UF) 24 million (approximately $926.9 million) 3.4% sustainability-linked bonds (SLBs) due 2039 and Ps.1.75 trillion (approximately $1.9 billion) 5.3% SLBs due 2034, each of which was comprised of a public offering in Chile and a concurrent offer and sale of bonds to eligible investors outside of Chile pursuant to Rule 144A and Regulation S.

Chile offered investors outside of Chile UF6.6 million and Ps.563 billion of the bonds. BofA, Citi, Itau, and JPM acted as initial purchasers for the bonds sold to investors outside of Chile. The UF-denominated global offering launched on October 17, 2023, priced on October 18, 2023, and closed on October 20, 2023. The peso-denominated global offering launched on October 24, 2023, priced on October 25, 2023, and closed on October 30, 2023.

UFs are inflation-indexed units of account derived from Chile’s consumer price index month-on-month percentage change. This offering constitutes the first time Chile offers inflation-linked bonds to investors outside of Chile pursuant to Rule 144A/Reg S.

Pursuant to the terms of the bonds, Chile offered to pay step-up rates 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. With these issuances, Chile reinforces its commitment to expand the outstanding portfolio of bonds with sustainable characteristics by including instruments in local currency, in addition to creating benchmarks now in the UF curve, opening this market to foreign investors.

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.