Sovereign Sustainable/ESG Deal of the Year – Republic of Colombia

Colombia’s finance ministry is no stranger to international markets, but it set all sorts of records with its $2.5 billion bond placement in late 2023.

The deal was Colombia’s first bond with specific social targets – what the finance ministry called a bond with a first and last name – the first social bond and the first international bond issued under its ESG financing framework. The bond was oversubscribed 4.7 times, allowing the sovereign to go in with a longer tenor and shave basis points from the initial price considerations.

The bond was issued in two tranches, a 12-year $1.25 billion bond with an 8% coupon, and a 30-year $1.25 billion bond yielding 8.75%.

The issuance had lower rates and longer tenors than in prior traditional issuances, despite the volatility in the marketplace around the time of issuance.

While the bond did not specify precise dollar amounts for use of proceeds, it was launched for projects in a series of crucial issues for President Gustavo Petro’s administration, including access to basic services, education, employment, food security, health care, housing and peacebuilding.

These areas, and others, are at the heart of Petro’s reform agenda, including labor, pension and tax reform, that has his administration and Congress at loggerheads. The social bonds are intended to help the administration comply with its plans.

Colombia was the first country in Latin America to develop a taxonomy for green finance, launching it in 2022, subsequently refining its guidelines in 2024. The country broke new ground with its social bonds, opening the door for other countries to follow.

The ministry followed up in April with a retap of the bond for $1.3 billion. The coupons were lower for the 12- and 30-year bonds, which were oversubscribed nearly 8 times.

Colombia’s external debt at the end of third quarter 2024 was 47.9% of GDP, up 0.6% compared to the same period the previous year.

The country’s economy expanded by 2% in the third quarter and 1.6% through September, an improvement on the 0.6% from the previous year. Inflation through November was 5%, a major drop from the 9.3% in 2023, but still well outside the Central Bank’s 2-4% target band.