Category: Peru

Peru will cut its monetary policy rate by 50bp to 1.50% in its August 6 meeting, following a 100bp cut to 2.0% in July, according to a Morgan Stanley forecast. “At the last meeting the authorities signaled the end of aggressive interest rate cuts, but with accumulated inflation in the first seven months of the year at 0.21% on the back of three months of sequential price declines … inflation data remains supportive of further policy easing,” the shop says. It expects the rate to drop to 1.25% by the end of the year. Bank of America Merrill Lynch also sees the rate dropping to 1.50% this week and then rising to 3.50% in 2010.

Japan’s Marubeni says it has acquired a 29% stake in Peruvian water utility Consorcio Agua Azul from local private equity shop AC Capitales, which is exiting the utility. Terms were not disclosed and the sellers were not available for comment, as Monday was a public holiday in Peru. However, Marubeni says the acquisition makes it the largest shareholder in the utility. AC acquired the stake in late 2006 for $8.4m from Italian companies Impregilo and Acea, according to Peru-based law firm Payet, Rey, Cauvi, which acted as legal counsel on the acquisition in December 2006. Rodrigo, Elias, Medrano, also based in Peru, had originally advised Impregilo and Acea on the sale of the stake to AC Capitales, and acted as the seller’s legal advisor on the sale of the stake to Marubeni, a source close to the shop tells LatinFinance.

JPMorgan revised downward its 2009 GDP growth forecast for Peru to 1.7% from 2.2% owing to poor performance in April and May. The shop says GDP in 2Q will likely post another sequential retreat following the 6.2% quarter-over-quarter annualized drop in Q1, reinforcing the view that Peru has joined the global recession. This is not the first time JPMorgan has chopped its Peru forecast. In early July it reduced to 2.2% from 3.5%.

Barclays forecasts Peru’s central bank will make a 50bp cut to the monetary policy rate on July 9, bringing it down to 2.5%. However, it points out that recent central bank language may be consistent with a further 100bp cut. “We believe this is unlikely because of the moderation of other central banks’ actions, signs of activity already stabilizing in several parts of the world, the recent run-up of commodity prices, the sharp decline of the ex-ante real policy rate due to the 350bp of cumulative easing since January, and the central bank’s expectation that the government’s fiscal plan will add sizeable impulse to GDP,” Barclays says. Bulltick Capital, meanwhile, agrees with a 100bp cut. “With the collapse in inflation and dramatic fall in economic growth, we see room for the BCRP to cut another 100bp this week, bringing the benchmark policy rate to 2.0% where we expect it will remain by end-2009,” Bulltick says. It adds that June inflation data shows a steep fall, the second consecutive negative this year, bringing yearly inflation to 3.06% from 4.21% in May.

Peru has retapped its 2025 bonds for $1bn, following an announcement that it will make an early payment on Paris club debt to France and Italy. The BBB minus/Ba1 rated sovereign reopened the 7.350% notes at 103.827 to yield 6.950%, or UST plus 343.6bp. Guidance had been given at 7% area Monday morning, and the issuer built a $4.7bn book. The 2025 – originally offered in 2005 – was seen trading last week to yield around 6.7%, according to investors and bankers away from the transaction, indicating a reopening concession of about 25bp-35bp. A banker on the deal meanwhile spots it at 20bp. Peru opted to reopen the 2025s, rather than the 2019s sold earlier this year, as it was an issue originally used to pay Paris Club debt, say bankers on the deal, also highlighting the advantage of replacing euro debt due 2010-2015 with longer dollar debt. “Reaching longer may have been challenging but it was a measured extension that worked out well,” says a DCM banker away from the deal, noting the 16-year tenor – the longest LatAm deal so far this year – is good for the market. “Peru is issuing from a position of strength. It has done a good job preparing for a difficult period,” says a LatAm-dedicated investor who participated, calling the pickup to the existing bonds “decent, if not great.” JPMorgan and UBS managed the transaction. Peru sold $750m of the 2025s in July 2005 through JPMorgan and UBS, and added $500m in December through Citi. Peru’s government says it plans to pay France and Italy about $850m equivalent in mostly euro-denominated debt with the proceeds. Peru’s total Paris Club debt at the end of the first quarter was $3.89bn. Peru sold $1bn in new 2019s in March, marking its first cross-border sale in almost 2 years.

The Peruvian arm of Pluspetrol has wrapped up a $100m 4-year final facility. The Calyon-led transaction was closed recently without any major changes to its most recent launch. It had tried to raise the funds in the second half of 2008 but retreated in the face of imploding credit markets. The deal offers Libor plus 425bp. Peru’s BCP and Brazil’s Itau are the only 2 banks to have joined the club of lenders. While a handful of European banks had been mulling tickets, Pluspetrol opted to close the earlier this month to meet its internal deadlines for the financing, says an executive involved in the process.

Oil and gas company Maple Energy has sold its 18% stake in Peru-based Aguaytia Energy to North Carolina-based Duke Energy for $28m cash. Maple, listed in Lima and London, will use proceeds to fund an ethanol project in the country, pay down debt and for general corporate purposes. The seller, which does not say if financial advisors were involved, says it will continue to serve as the operator of the gas related assets of Aguaytia. These services will continue for up to 9 months from the date of closing of the sale, unless earlier terminated by Duke.

While consensus pointed to a 50bp cut, Peru’s central bank made a larger-than-expected 100bp cut last week, bringing the monetary policy rate to 3.0%, and accumulating 350bp in easing this year. The central bank cites falling inflation and economic deceleration as the reasons behind the move. It adds that inflation has fallen from 6.7% in December to 4.2% in May. “If this trend continues the central bank will continue easing the rate,” the bank says.

Market consensus is that Peru will slash its monetary policy rate by 50bp to 3.50% Thursday. “We expect a 50bp to take policy rates to 3.50%, a level not seen since January 2006,” says Morgan Stanley. The shop adds that even if the central bank eases further, it will be forced to hike the rate early in 2010, as inflation may prove to be “stickier” than expected. In April, it says, inflation was 4.8% while the target is 1%-3%. Bank of America-Merrill Lynch also expects a 50bp cut this month and another 50bp reduction in July. It also forecasts inflation could reach 2.8% in Q4. Elsewhere, Bulltick predicts 100bp easing and adds that inflation should fall well within target this year on the back of a decrease in food and metals prices.

Vancouver-based Cardero Resources has agreed to sell its Pampa de Pongo iron ore property to China’s Nanjinzhao Group for $100m, half the price agreed in October for the Peru asset. “Hongda had requested a price reduction due to difficult global economic conditions that have significantly adversely impacted iron ore prices,” says Cardero. Nanjinzhao subsidiary Hongda Mining, which is acquiring the property, has given a $10m deposit to Cardero Peru, which is non-refundable unless Cardero terminates the agreement or Rio Tinto exercises its right of first offer. “Due to the new lower purchase price, pursuant to its right of first offer Rio Tinto will have another 45-day period to match the revised terms,” says Cardero. The balance of the purchase price is due on the earlier of 10 days after Hongda has received the necessary Chinese governmental approvals to proceed with the purchase, or December 17. The break-up fee payable by Cardero remains $20m. Hongda has agreed to provide within 90 days an irrevocable letter of guarantee from a senior Chinese bank guaranteeing payment of the balance of the purchase price. “The board firmly believes that accepting the offer of $100m is in the best interests of the company and our shareholders, given the current long term projections for the global iron ore markets,” says Cardero president and CEO Henk Van Alphen. “The revised agreement will provide us with very significant amount of near term capital that may potentially be employed in new and strategic opportunities – instead of waiting an indeterminate amount of time for commodity prices to improve and hope to sell for higher price in the future,” he adds. According to Van Alphen, taking Pampa de Pongo to feasibility would have resulted in “massive dilution to the shareholders.” Cardero said in October it had agreed $200m for the property, but would take other offers for a 9-month period.