Category: Peru

Maple Energy has hired Netafim Peru for the engineering, procurement and construction of a drip irrigation system. Maple will pay Netafim about $22m for the project. The system will irrigate an 8,000-hectare sugarcane plantation in Peru. This deal, which is part of Maple Energy’s $222m ethanol project, is funded with cash on hand, says CEO Rex Canon. The whole ethanol project, he says, is financed with internal resources and project financing, but he declines to say from which banks. The ethanol project should be up and running in October 2010 and will produce 35m gallons of fuel-grade ethanol and 37MW of electric power, of which half will be used by Maple Energy and the rest sold to the national electricity grid.

JPMorgan is moving to neutral from underweight in its EMBIG model portfolio through adjustments that include raising Peru to overweight from neutral. Its portfolio beta rises to 0.99, although the shop also has a high cash balance at 10.4%. JPMorgan already moved Argentina and Venezuela to marketweight from underweight over the past 3 weeks. It meanwhile reduces holdings in very short-dated Mexican debt and rotated to longer-end bonds, but keeps the overall country exposure unchanged. “Our less bearish view on EM sovereign debt is because we believe that the likelihood of a sovereign default is very low, while the yield spread on the EMBIG to 3-month USD Libor has moved back to levels last seen in early 2003 (over 850bp, from a low of 120bp),” says JPMorgan. To raise Peru to overweight, the shop buys $0.5m of the 2025 bond at 101.00. It notes that although ‘33s look slightly cheaper on the curve, it is wary of the higher USD price. “We expect fundamentals to continue to justify the credit’s safe haven status,” says the shop. Peru has been a modest but reliable outperformer over both a year-to-date (+2.9% versus -1.3% for the EMBIG) and 12-month horizon (-2.4% versus -12.3%). JPMorgan sees growth dropping sharply from 9.8% in 2008 to 3.5% in 2009, but says Peru will still see the most resilient growth in the region this year. It also expects a very manageable 2009 fiscal deficit, at around 1% of GDP, notwithstanding a 3 percentage point GDP fiscal stimulus program. “Peru’s balance sheet also remains rock-solid: net public debt is only 12.3% of GDP – well below peers and just one-third the level of 2004. Moreover, the public sector is a net external creditor, with BCRP reserves of $31bn, not only well above the public sector external debt (less than $20bn), but nearly covering the country’s total external debt (public and private),” says JPMorgan.

Peru’s central bank has cut the monetary policy rate by 25bp to 6.0%, in line with consensus. The bank says inflation has declined for a fourth consecutive month, to stand at 5.49%, and should keep falling. It says inflation should reach the 2.0%-3.0% target by the end of the year. JPMorgan expected a 25bp cut, but believed the odds of a larger 50bp cut were possible given the rate of disinflation in February. Credit Suisse, which had initially expected the central bank to leave the rate unchanged, but later revised its forecast to a 25bp reduction, expects gradual easing to 5.0% by the year-end.

Southern Copper has put its Tia Maria copper project in Peru on hold as weaker metals prices make it unfeasible, the company says. A 2007 feasibility study determined that the project would require a $934m investment. Copper closed at $1.62 a pound March 5, versus a high of around $4.00 last summer. Henry Walqui, sub-director of projects, says the project can only be developed if providers and engineering firms adjust costs to reflect new market conditions. The Tia Maria project was expected to begin producing in 2010, targeting an average 120,000 tons of copper annually.

Goldman Sachs and Merrill Lynch both expect Peru’s central bank to cut rates by 25bp to 6.0% at its March 5 meeting. “Increased evidence of a sharp activity slowdown, together with global easing, set the path for lower policy rates,” says Merrill. “However, still-high inflation, modestly lower inflation expectations and the PES slide grant a cautious pace versus other LatAm banks,” it adds. Goldman expects inflation to moderate in the months ahead and for the economy’s deceleration to become more visible. Inflation stands at 6.53%, according to the central bank. While Goldman forecasts the rate to drop to 5.0% by June, Merrill Lynch expects loosening to 4.0% by year-end.

The government of Peru says it has awarded Spain’s OHL Concesiones the right to build a 360km long highway along the country’s coastline between the cities of Pativilca and Trujillo. OHL says it will invest $400m in the project but does not say how it intends to finance it. The concession is for 25 years, including the construction period, according to government information.

APR Energy’s Peruvian unit has nabbed a $45m contract with Electroperu. Under the contract, says Electroperu, APR will generate up to 60MWof electricity for the Trujillo Norte substation. Electroperu says it will provide financing for the $45m, but does not disclose terms. Alfredo Sauza, an engineer at Peru’s ministry of mines and energy, says the contract was awarded through an auction process. He also explains that the Trujillo Norte substation is among the most important on the grid known as Sistema Electrico Interconectado Nacional.

Peru’s government has ordered its finance ministry to disburse $100m for an infrastructure fund as part of its anti-crisis plan, according to president Garcia’s office. State-controlled financial development company COFIDE would manage the fund. It will invest in public-private partnerships and concessions for infrastructure and public works projects.

Peru’s central bank has cut its monetary policy rate by 25bp to 6.25%, citing lower inflationary pressures. The bank says it expects inflation to continue falling. Merrill Lynch had correctly predicted the bank would make the quarter point reduction. “Increased evidence of slowing activity and global easing set the path for lower policy rates,” says the shop, adding that it expects a stronger cut at the March 5 meeting. Merrill expects 250bp of easing through 2009.