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World Bank Becomes First Foreign Issuer to Launch Bond in Chilean Pesos

Washington, DC, May 31, 2000 — Today the World Bank became the first foreign issuer to launch a bond in Chilean Pesos, thereby offering a new asset class for international investors. This transaction, a Chilean Pesos (CLP) 55 billion 5-year inflation-indexed euronote, is the first inflation-indexed security launched by the World Bank and adds a new dimension to the development of the Chilean capital market, which has experienced a gradual liberalization process since 1998. It also marks the second time the World Bank has opened up a Latin American market this year, following the Bank's issue in Mexican Pesos of February 2000. The bond issue was lead-managed by Chase Manhattan International Ltd., New York.

Chile's successful economic performance in recent years has led to an impressive growth of its domestic fixed income markets. Most of the longer-term local bond issuance has been in the form of inflation-indexed notes, offering a real rate of return adjusted for inflation in consumer prices. These debt instruments are linked to the Unidad de Fomento (UF), the CPI index created in 1967 and published daily by the National Statistics Institute of Chile, which is used to index a broad array of financial transactions, including time deposits, mortgages and corporate loans and bonds. The World Bank took advantage of the growing investor demand for UF-linked notes in Chile and abroad, and opened the way for further international issuance in that instrument.

With its inflation-indexed bond issue in Chilean Pesos, the World Bank offers investors a financial instrument paying a real return equivalent to that of a UF bond. The Bank's CLP 55 billion (equivalent to USD 105 million) 5-year Euronote is due June 14, 2005. It carries a coupon of 6.60 percent, payable semi-annually, to be adjusted for the movements in the UF over time. Assuming an annual inflation rate of Chile of about 3 percent annually over the coming years, this would be equivalent to a nominal bond return on Chilean Pesos of close to 10 percent per year. Payments of bond coupons and the redemption of the notes will be converted to USD at the prevailing CLP/USD foreign exchange rate. At a re-offer price of par, the transaction was priced about 8 basis points through the yield of the Central Bank of Chile 8-year PRCs (Pagare Reajustable Cupon) reference bond auctioned on May 30, 2000.

The transaction was well received by domestic institutional investors which purchased some 75 percent of the issue. The balance of 25 percent was placed with North American and European investors. The breakdown by investor types was as follows: pension funds accounted for about 55 percent of the issue, local bank funds purchased 20 percent of the transaction, mutual funds took about 5 percent and retail investors about 20 percent of the issue.

In addition to the development of an offshore market in UF-linked instruments, the transaction reinforces international investor interest for financial assets issued in the Chilean currency and establishes a AAA benchmark for that market in the 5-year maturity. On the domestic side, the availability of World Bank bonds diversifies the range of assets available for institutional investors. In addition, the bond syndicate includes two Chilean banks that will participate for the first time in an international bond issue.

The World Bank is a market leader in bond issuance in emerging market currencies. It received several international awards for its transactions in South African Rand, Greek Drachma, Czech Crown, Philippine Peso and Korean Won over the years. During 1999 alone, the Bank issued bonds in currencies such as Czech Crown, Slovak Crown, Polish Zloty, Greek Drachma, and South African Rand.

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