Uruguay confirmed innovative Green Bond issuance and debt swap

URUGUAY - Report 21 Oct 2022 by Esteban Fernández Medrano

On October 20, the government confirmed the issuance of an innovative 12-year global dollar-denominated “green-bond”, i.e., a Sovereign Sustainability-Linked Bond (SSLB), indexed to climate change indicators, whose final cash flow depends on whether Uruguay meets certain environmental objectives (key performance criteria - KPC). While there have been issuances of these types of bonds before in LATAM, this bond has the peculiarity that, from 2027 onwards, it not only pays a premium in case Uruguay underperforms its KPCs but it also obtains a discount on its coupon if Uruguay overachieves them. In this report, we focus on the peculiarities of this bond, as SSLBs are starting to attract investors' interest in supporting bonds that “enforce” COP environmental promises.

The fact that this bond was over-subscribed reflects the rising market appetite for Sustainability-Linked Sovereign Bonds, particularly in a country with relatively low carbon emissions. We would not be surprised to see more of these instruments in LATAM in the future. It also reinforces the view that Uruguay is currently benefitting from its overall positive macro performance and the fact that its conservative political and market alignment allows it to differentiate itself from other countries in the region.

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