Peru Tests Local Currency Appetite

Peru marked a number of firsts Wednesday after raising $1.1bn equivalent through a dual-tranche bond reopening that generated more than $7bn in orders and tested international appetite for local currency bonds. Absent from the market since 2010 and yet to test drive its new BBB ratings acquired late last year, Peru saw an opportunity to raise funding in a low interest rate environment before European growth concerns began to weigh on sentiment. In this year’s inaugural global local currency trade, the Andean nation reopened its 6.950% 2031 global PES bonds for the equivalent of $600m. It also raised another $500m through a reopening of its 5.625% 2050 USD bonds. The 2050 reopened at 104.098 to yield 5.372%, or UST plus 225bp, inside of 235bp area guidance. This meant a 5bp-10bp concession against a 5.1% yield before announcement, according to bankers on the deal. The PES issue reopened at 100.956 to yield 6.875%, inside of 7.000% area guidance, or what some saw as close to a 30bp concession against a 6.55%- 6.60% secondary yield previously seen for the 2031s. However, a banker away from the deal calculated a 7bp-8bp concession against pre-announcement 2050 levels of 217bp on a spread basis and 17bp on the PES tranche pre-announcement yield of 6.70%. “It couldn’t have gone better,” says the banker away from the deal. The 2050 bonds were trading at 105.0 in the grey Wednesday afternoon, according to an investor. Peru built a $4.1bn order book for the USD tranche with 110 accounts participating and a $3.0bn equivalent book on the PES tranche with participation from 65 investors. Opportunities to participate in PES denominated trades are few and far between and for those investors who err on the side of caution, Peru’s currency offers less volatility than most, albeit with less FX upside. Fund managers and pension funds comprised the bulk of investors with some insurance and hedge fund participation. Citi and Deutsche Bank managed the sale. Peru is rated BBB/BBB/Baa3. T