Category: Peru

Catching up with the other agencies, Moody’s has raised the foreign-currency bond rating of Peru to Ba1 from Ba2, one level beneath investment grade. The shop has been the most conservative of the three major ratings agencies during Peru’s recent period of unprecedented growth and macroeconomic stability. Fitch gave Peru a BBB minus grade in April, and S&P followed in July. “The upgrade was prompted by steady improvement in Peru’s sovereign credit profile driven by a continued and accelerated strengthening in the balance sheet of the government and the local banks,” says Moody’s. Peru’s government has also reduced the proportion of foreign currency debt, and banking system, has greatly reduced the share of dollar-denominated loans and deposits. The agency expresses concern, however, that socio-economic challenges pose potential political risks to the country’s medium-term outlook. “All three agencies have recognized that Peru has significantly improved its credit profile and that the improvements made are likely to be sustained,” says Goldman Sachs, commenting on the Moody’s move that it sees as “warranted and well deserved.”

Credit Suisse has revised upwards its 2008 GDP growth estimate for Peru to 8.5% from 7.0%. “What we saw is the economy is decelerating but at a lower pace that we had expected,” says the shop’s Andean economist Carola Sandy. Real GDP growth was 10.3% yoy in the first 6 months of the year. Growth in areas other than agriculture, mining and gas remains strong. However, a slowdown is expected because of a tightening in monetary policy, she adds.

Ecuadorian concession operator Hidalgo & Hidalgo, through its Peruvian subsidiary CASA, is heard close to launching bond financing for the fifth and final leg of Peru’s Interoceanica highways, or IIRSA Tramo 5. The dollar-denominated PPP bond is expected in the $200m size area, and will feature the basic characteristics of the CRPAO structure, in which Peru’s government guarantees payment on notes issued from a trust. BNP Paribas is leading the deal, having structured previous financings for Peruvian toll roads. The transaction – set to meet the same tough market conditions as all other LatAm issuers, as well as investor aversion to complex structured deals – is heard to include novel features like a delayed draw, which adds flexibility to the borrower’s access to funds. In a typical CRPAO structure, notes are issued from a trust and proceeds sit in a remote vehicle, which feeds cash in increments to the concessionaire as it meets construction milestones. Deutsche Bank has been active in these deals, completing at least one this year that was redistributed in the form of CLNs to EM institutional investors. In one transaction, Grana y Montero – the Peruvian developer – and JJC Contratistas raised $193m through a trust that has an 18.5-year life and can issue debt and derivatives.

South African miner Gold Fields plans to invest $800m in the Cerro Corona gold mine located in Cajamarca, Peru’s state owned news agency Andina says. The mine is expected to produce 356,000 ounces of gold during the first year of operation and 375,000 the year after, Andina adds.

The World Bank has approved a $370m loan to Peru, the second in a series of up to four supporting government initiatives for efficiency in public spending and improved competitiveness. The fixed-spread loan is available on a drawdown basis, and repayable in 21.5 years, including a 13.5-year grace period. The first $200m loan in the program was granted in December of 2006. Separately, the bank approved loans of $35m and $40m to Panama to support government programs to increase the quality of health services and education in rural areas. Each 20-year loan features a 5-year grace period. The bank did not disclose pricing.

Banco de Credito del Peru (BCP) has privately placed $150m in 2015 MT100 bonds, amid a flurry of similar trades. Demand reached about $225m, according to a banker managing the sale. The issuer and the banks on the deal declined to disclose terms or buyers of the notes. Proceeds from the A-/Baa2 sale are for general corporate purposes. Standard Chartered and Wachovia managed the sale. BCP follows Interbank into this market and BBVA Continental is expected to price a similar transaction for $200m soon via Sumitomo Mitsui. Interbank is heard to have sold $200m in MT100 FRNs to Credit Suisse. It included a 7-year tranche and was heard to have an all-in cost to the issuer equivalent to roughly 7.5%.

Transportadora de Gas del Peru (TGP) is heard seeking new funds to help improve and expand its pipelines near the Camisea gas fields. The company has put out an RFP seeking $150m in 10-12-year financing, say loan bankers. TGP is heard to have originally considered the local bond market, but has now focused on the international syndications market. The pipelines will connect the Camisea field to the Peru LNG pipeline being built with newly obtained funds in the loan and project markets.

Outotec has agreed with Southern Peru Copper Corporation (SPCC) for the delivery of a copper solvent extraction and electrowinning plant for SPCC’s Tia Maria project in Arequipa region in Peru. The $150m contract covers basic and detail engineering, proprietary equipment and services for the construction supervision and commissioning. The Tia Maria project includes development of a new processing unit and when completed in 2010, it is expected to produce 120,000 tons of copper cathode per year.

Peru’s robust 7.3% GDP growth in May exemplifies the country’s strong internal growth despite harsh external conditions and monetary restrictions, says Alfredo Coutino, senior economist with Moody’s Economy.com. “The internal market is expected to be the growth driver this year, which will compensate for the deceleration in exports,” Coutino adds. GS is also optimistic on Peru’s outlook. “The economy continues growing at a remarkably robust pace,” says the shop. “We remain comfortable with our 8.3% real GDP growth forecast for full year 2008,” it adds. On Monday, Peru received its second investment grade nod, this time from S&P, at the same time that new finance minister Luis Valdivieso was sworn in.

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%.