Winner: Republic of Peru $4 billion Multi-Tranche Issuance
Future historians in Peru will look back at 2020 as a year of dramatic economic and political upheaval.
The country had three presidents in the span of one week in November 2020 and was pummeled by the pandemic, with the economy contracting by 13% and poverty increasing by 10 points to 30%. Peru registered the world’s highest per capita mortality rate from Covid-19.
As important – but on the positive side – was a decision by interim President Francisco Sagasti’s administration to take a chance on the international markets in November 2020 to raise additional funds for its Covid-19 response.
The gamble not only paid off but set new benchmarks for the country and the Andean region. The $4 billion issuance secured Peru the Sovereign Bond of the Year award.
The three-tranche deal was the country’s largest up to that point in the international bond market and the 12-year and 40-year tranches had the lowest coupons for sovereign bonds in the region in those maturity brackets.
The third tranche – Peru’s inaugural 100-year bond – was particularly impressive. The sovereign became only the third Latin American issuer and the first in the Andean region to issue a century bond. It was the lowest-yielding century bond ever sold by an emerging economy.
Morgan Stanley called the transaction a “milestone,” while Citi used the word “historic” to describe it. BBVA said that Peru “showed strength and proved to have a solid investor base, as the printed a record transaction even after going through multiple presidents in the weeks leading up to the announcement.” The three banks worked on the deal.
Pedro Francke, who stepped down as economy and finance minister on February 1, says the bond had three major impacts. It provided new financing, reflected good management of public funds, and showed that Peru was on solid ground with international investors going forward.
“Peru had a high level of political instability, but at the same time we had investors buying century bonds, which implies long-term economic and political stability. The 100-year bond is the result of an institutional construction and positioning of our bonds in the market,” he tells LatinFinance.
While the impact of the pandemic continues to hound the country, it rebounded as investors had anticipated. Growth in 2021 was 13% and the fiscal deficit, which the government had estimated would be 5%, was closer to 3%. Tax revenue skyrocketed in 2021, reaching a seven-year high, and exports shattered records, bringing in close to $60 billion.
Francke says criticism of the government’s use of the bond market was more political than technical, with Peru’s debt still well below regional averages. He notes that Peru finished 2021 with a debt below 37% of gross domestic product, which is the second lowest in the region after Chile.
“Our debt profile in the coming years is going to be quite good and Peru stands out as a country with a low debt ratio, which is one of the things that provides support for us in the international market,” he says.- LF