Category: Peru

Aureos, a global fund focused on mid-market private equity, is raising $300m for its Aureos Latin America Fund (ALAF). The vehicle marks the manager’s first push into Peru and Colombia, Erik Peterson, regional director for LatAm at Aureos, tells LatinFinance. “Private equity interest in Colombia and Peru is increasing,” says Peterson. He notes that a relatively recent turnaround in those countries’ politics and security situations is driving a boom in investment from corporates and financial investors. The ALAF will also target Central America and Mexico. Aureos has two smaller funds of $36m and $21m dedicated to CentAm and Caribbean, while in Mexico it has already closed two deals. The vehicle’s strategy will be to seek out both control and minority deals in various sectors, including education, non-bank financial services, healthcare, logistics, tourism, housing and transportation. ALAF, a 10-year vehicle targeting returns of 20% or more, is Aureos’ largest global regional fund, and tops the manager’s several vehicles in Asia. Peterson attributes the larger size to opportunities he sees in LatAm, and the fact that the maximum investment per deal for ALAF is $10m, unlike the $5m at which it usually caps its investments. Aureos hopes to have $300m for the fund raised by June.

Peru plans to hold another auction of sol-denominated bonds by the end of this month, Jose Miguel Ugarte, executive director of public credit, tells LatinFinance. A $900m-equivalent program kicked off March 27 with the placement of PES273m ($100m) in 2026 bonds at 6.96%. As announced earlier this year, Peru will repay $1.1bn in multilateral debt using a combination of its own treasury surplus and the issuance of sol-denominated bonds through regular sales. Ugarte says Peru is still deciding on the exact mix of its own funds and debt that will form the repayment. A dollar offering this year is unlikely, he explains, given the current state of the US market and Peru’s ability to manage its own financing. Other items on the finance ministry’s agenda this year include supporting reform that increases the amount that pension funds can invest in international assets and the creation of a “Lima-bor” floating interbank benchmark rate, the official says.

The Electropampas/Pampas Verdes hydroelectric and irrigation project in Ayacucho, Peru is heard moving ahead with $2bn in project financing. “This is going to be one of the most important projects for Peru going forward,” Carlos Penny, president of financial advisor to the project, Pennynvest, tells LatinFinance. Long term financing should be in place over the next 16 months, he adds. “We are going to be working with the multilateral agencies, we have spoken to CAF – they are very interested,” says Penny, adding that the project managers are also talking to the IFC, IDB, OPIC and MIGA. “All these entities have been formally contacted and we have had conversations with some of the large international banks, particularly European,” says Penny. The four hydro plants will generate a combined 1,200MW and accumulate 1bn cubic meters of water. The project has been studied over the last 8 years by Switzerland’s Electrowatt. It has four sponsors: one Peruvian, one UK and two Swiss, and there are discussions to involve a major international electricity group. Penny declined to identify the parties involved. The project will take four years to build. Penny does not anticipate environmental issues since the areas to be irrigated are unpopulated. It will include a 36km tunnel connecting two lagoons, he adds. Given how long this project has been in the works, locals have been skeptical that it will see the light of day.

It may take a while before investment grade-only investors start piling into Peruvian assets en masse, since most need another endorsement. “Many investors will still need an upgrade from a second ratings agency in order to invest in Peru,” says the head of strategy at a leading US-based shop, adding that the ability to allocate depends on each fund’s covenants. S&P has Peru at BB+, one notch below investment grade, while Moody’s rates it Ba2, two notches below. Fitch yesterday upgraded Peru to BBB minus. S&P is likely to raise Peru in the next 12 months, says Goldman, which notes “the upgrade to investment grade is likely to attract additional investment inflows into Peru in terms of both FDI and portfolio inflows, increasing the already strong pressures for the PES to appreciate.” One tangible benefit for Peru should be increased stability as it lures a higher class investor. “From a risk-reward point of view, it will become a less volatile country because of the nature of the investors that will be entering [the bonds,]” says the head of strategy at the Wall Street firm.

JPMorgan has won a contract to provide securities services to Cavali, Peru’s central securities depository. The shop will provide custody and asset administration services to Cavali for its portfolio of global securities. JPM also provides this service to Cedeval, El Salvador’s central securities deposit. “We are expanding region to region among all different types of clients; not only central depositories but we have central banks, insurance companies, pension funds, mutual funds,” says Fabian Banchiero, product segment head for LatAm at JPMorgan Securities Company.

Peru’s Interbank, which is seeking to raise $200m in a recently restructured two-part facility, is launching to retail today with a bank meeting in New York. The facility, being led by Standard Chartered, includes a $100m trade facility at 80bp, 85bp and 95bp over Libor in years one, two and three, respectively, and a $100m working capital facility at 100bp, 110bp and 120bp over. The deal competes with Scotia Peru’s $200m 5-year amortizer via Citi, which bankers away from the process say pays 120bp over Libor. Both facilities are heard moving slowly with no clear signs of participation yet. That is because of challenging market conditions for lenders, claim bankers on the deal. “Interbank is gaining traction now,” says an executive close to the process. He adds Interbank may secure its first two MLAs this week.

Peru’s Interbank has restructured and increased the margin on a $200m 3-year loan. The deal, launched in early March as a working capital 3-year step up, has now been broken into two parts: a $100m trade facility at 80bp, 85bp and 95bp over Libor in years one, two and three, and a $100m working capital facility at 100bp, 110bp and 120bp over Libor, according to a banker close to the process. Participants can expect fees of 35bp plus an additional 5bp for early commitments, adds a banker away from the deal. Originally, pricing for the entire facility, made up entirely of working capital, was 80bp, 85bp and 95bp over Libor. But that apparently did not go over well with market participants and was subsequently changed to reflect the current pricing. This is the fourth time a LatAm bank has flexed up pricing on a loan this year. Others, such as Peru’s BCP and Brazil’s BicBanco and Unibanco also had to adjust margins as expectations changed. Standard Chartered, which has taken a particular focus on financial institutions this year, has had a leading role on all those deals including Interbank, for which it is sole bookrunner.

Peru’s impressive expansion looks set to slow, according to Credit Suisse, which predicts real GDP growth of 6.5% in 2008, from 8.9% in 2007. The shop sees tightening in monetary policy and a less favorable global environment as slowing factors. Domestic demand growth will ease to 9% this year, down from 12% in 2007. A gradual decline in consumer spending growth in coming quarters could happen since consumer sentiment has gradually weakened since 2Q 2007. Private investment growth will also likely decelerate due to weaker domestic and global demand, says CS. Import growth will likely also fall this year in real terms, in tandem with domestic demand, but the change in net exports will still drag down real GDP growth by about 2.7 percentage points, the shop says.

Peru followed through with plans to pay down $838m worth of Brady debt Friday. The sovereign eliminated its outstanding amounts FLIRBs, PDIs and Discount bonds, Jose Miguel Ugarte, head of public credit, tells LatinFinance. Peru used $685m worth of proceeds from peso-denominated sovereign issuances at the end of last year to pay down the notes at par. It also used $153m from the Treasury to pay the balance, says Ugarte. The process eliminates virtually all of Peru’s Brady debt. The country still has about $50m in Par bonds that are trading at 85, which it chose not to call. Having received news of the plans to pay down the debt earlier this year, markets didn’t react to the move Friday, says one Andean strategist. The strategist notes that in general, however, the move is a welcome development that is part of Peru’s overall positive story.