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Latin America's Green Bond Market Sprouting Again After A Sluggish 2018

Highlights

- Despite a slow 2018, we predict that green issuance in Latin America will pick up this year.

- Brazil continues to have the largest group of green bond issuers in the region, with Chile and Mexico following.

- We believe supportive policies and investor demand will continue to expand the region's market, but in order for the market to significantly gain momentum, the number of large new issuers would need to expand across all issuer types.

May. 08 2019 — Although global issuance has been slow so far, S&P Global Ratings expects the green bond market to grow 8% this year, globally. Correspondingly, we predict green issuance in Latin America will pick up after a slow 2018. Brazil continues to have the largest share of the region's green bonds, followed by Chile and Mexico. However, we continue to see issuance concentrated by sector and issuer type, so we believe there's significant room for the Latin American market to expand, although this would require the number of large new issuers to increase. We see slowly growing support for sustainable bonds in terms of countries' policies, investor demand, and more climate-related disclosures, although we haven't yet seen preferential pricing for green capital in the region.

State Of The Global Green Bond Market

As stated in our Jan. 29 article, "Green Finance: Modest 2018 Growth Masks Strong Market Fundamentals For 2019," we expect the labeled green bond market to grow 8% this year, although the overall global issuance market is slowing and there's the likelihood of a credit cycle turn. (These labeled green bonds meet the Climate Bonds Initiative [CBI] green bond database screening criteria.) Green bond issuance has only grown 3% during the first four months of this year, compared to 85% growth for the same period in 2018 (see chart 1). However, in our view, strong market fundamentals and a continuous stream of new issuers and financing instruments may push global green issuance to around $180 billion in 2019 from the record high of $167 billion in 2018 (source: CBI). According to various sources, predictions for this year's annual issuance range from $140 billion to $300 billion. 

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