Category: Regions

S&P has raised Peru’s debt to BBB minus from BB+, the second investment grade endorsement for the sovereign following Fitch’s April promotion. The shop’s decision was based on a “significant decline in Peru’s fiscal and external vulnerabilities within a context of high and diversifying sources of growth with low inflation and strengthening macroeconomic fundamentals.” S&P expects GDP growth of 6.5% and investment reaching 25% of GDP in the medium term. Peru’s growth has also diversified, it notes, relying more on domestically driven demand and private consumption. “Peru’s political and social stability will continue to constitute a credit weakness compared with peers,” S&P cautions. The outlook is stable, with continued improvement in debt management within a stable political context supporting the case for moving further up the ratings ladder. Increased political polarization that weakens support for sound macroeconomic policy, however, would add downward pressure to the rating. Goldman Sachs says the upgrade is well deserved, citing strong macro fundamentals, large fiscal surpluses, low inflation, strong real GDP growth, and low and declining levels of public and external debt. “The current economic policies are likely to be maintained over the next few years, on the back of which we believe the ongoing virtuous economic growth cycle is poised to continue,” it says. The two-out-of-three status allows Peru’s inclusion in Lehman’s Global Aggregate Index, opening it up to investors limited to trading there. Peru’s benchmark Global 2037 bond traded at 101.00-101.50 late Monday, after opening at 100.25-101.00. Lima’s Bolsa gained 2%, outpacing Brazil’s Bovespa, up 0.95%.

No change is expected to Peru’s economic policy following the appointment of former IMF economist Luis Valdivieso to lead the finance ministry. “The Garcia administration continues to resist wage pressures and has used the commodity windfall to invest in infrastructure, pay down public debt and increase assets, a strategy which Fitch believes the new finance minister will maintain,” says Theresa Paiz Fredel, a senior analyst at Fitch. Others agree. “We believe that in Peru there is a consensus around an economic policy that favors growth without neglecting the social component. In that regard, we believe that the change of Luis Carranza for Luis Valdivieso represents a continuation of this economic policy,” says Alejandro Grisanti, LatAm analyst at Barclays. Valdivieso was sworn in yesterday by Peruvian president Alan Garcia, hours after S&P raised the Andean nation to investment grade. Fitch also rates Peru high grade.

BPZ Energy, a Houston-based oil company operating in Peru, has unveiled a new investment scheme in Peruvian oil & gas alongside Royal Dutch Shell totaling $750m over four years. Shell will contribute $300m for three gas exploration lots in Tumbes, on the northern coast. “We are still determining our strategy, but there will be several hundred miles of seismic lines and least 20 test wells drilled,” Carlos Niño Neira, VP of administration and finances at BPZ, tells Latin Finance. BPZ will also invest $300m, but it will concentrate on oil. In addition, the company has plans to build a 150MW thermal plant in Tumbes that would provide power to the northern coastal departments. The plant would require $150m in investment and could be ready by end-2010. BPZ has four concessions totaling 2.4m acres in northern Peru. Shell was active in Peru until 1998, when it decided to pass on the development of the Camisea gas fields. BPZ is producing an average of 474 barrels a day of hydrocarbon liquids at its off-shore Z-1 lot. It produced 86,319 barrels through the end of June, according to the Perupetro, the state agency in charge of promoting hydrocarbons.