DBRS Assigns A (high) Rating to Chile’s New Global Bonds

DBRS has today assigned a rating of A (high) to the Republic of Chile’s $1 billion ten-year global bond and $500 million ten-year Chilean peso-denominated bond (CLP). The trends are Stable. The ratings are in line with Chile’s Long-Term Foreign Currency Debt rating of A (high). DBRS considers the CLP issuance consistent with Chile’s foreign currency rating because even though the bond is denominated in local currency and transfers exchange rate risk to investors, it ranks pari passu with Chile’s unsecured and unsubordinated external debt and is subject to cross-default clauses on public external debt.

Bond proceeds will be used for general government purposes as the government carries out reconstruction initiatives following the February 27, 2010, earthquake and implements its social development program.

Chile’s ratings are underpinned by its sound macroeconomic policy framework, low debt burden and stable political environment. Rules-based fiscal and monetary policy, a flexible exchange rate and a sound financial system have helped the Chilean economy withstand the economic consequences of the global recession and the earthquake. According to a July 2010 survey by the Chilean Central Bank, the economy is expected to grow 4.8% in 2010 and 5.8% in 2011. With low debt levels and $14.7 billion saved in offshore sovereign wealth funds at the end of 2009, Chile has one of the most favorable debt profiles among all emerging sovereigns. Furthermore, there is political consensus in favor of the country’s sound macroeconomic policy framework, one of Chile’s biggest strengths.

Notwithstanding strong macroeconomic management, DBRS highlights several structural concerns, including high income inequality, a narrow export base and energy vulnerabilities. Moreover, Chile’s educational outcomes do not compare favorably with other Organisation for Economic Cooperation and Development (OECD) countries or emerging economies in East Asia. DBRS recognizes these are long-term challenges and the government is focused on addressing them.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Sovereign Governments, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating.