Peru Bonds Fly Off Shelf

Peru saw monster demand for its first foreign bond sale in almost 2 years, fuelled by rising EM sentiment, scarcity value and a prudent tenor and concession. The sovereign priced late Wednesday $1bn in 2019 bonds at 99.500 with a 7.125% coupon, to yield 7.196%, or UST plus 437.5bp. Guidance was UST+450bp area, versus early whispers of mid-400s and the book was almost 5x oversubscribed, according to a banker on it. Bankers on and away from the transaction place the new issue premium at 45bp-50bp, based on an interpolation between where 2016s and 2025s traded the previous day. The BBB minus/Ba1 issue was heard trading up in the gray one point yesterday afternoon. “The new issue concession was appropriate and the 10-year is a good spot to get involved,” says West Coast-based EM fixed income investor. Another buysider notes scarcity and Peru’s relative attractiveness versus Mexico, Colombia and Brazil, as incentives to purchase. “The benefit is certainly the scarcity value,” says Siobhan Morden, LatAm debt strategist at RBS. She notes that Peru CDS had looked attractive versus the rest of region, at about 10bp inside Mexico before Wednesday’s issue was announced. Such euphoria exposes the sovereign to criticism that it came too cheap, but leaving a little money on the table seems prudent in such volatile times. “They might have been more aggressive on price, but caution is best in the current markets,” says a banker away from the deal. Goldman Sachs and JPMorgan managed the sale. Peru plans to use some of the proceeds for liability management, including the repurchase of 2014 global bonds, which it authorized Tuesday. Peru last came to the cross-border market in July 2007, with a PES4.75bn ($1.5bn) issue of 2037 sol-denominated bonds priced to yield 6.90%. Peru has meanwhile been speaking to the IMF regarding its flexible credit line, notes Goldman’s research shop, which expects Peru to qualify for the new facility.