Peru Rating Raised by Fitch on Humala Policies, Mining Deal
November 11, 2011, 1:57 AM ESTBy John Quigley
(Updates to add analyst’s comment in eighth paragraph.)
Nov. 10 (Bloomberg) -- Peru had its foreign-currency debt rating raised one level by Fitch Ratings, which said it expects President Ollanta Humala to continue economic policies that led to a decade of region-beating growth.
Fitch raised Peru to BBB, the second-lowest investment grade, from BBB-, matching a move by Standard & Poor’s Aug. 30. Fitch gave the rating a stable outlook.
Humala, who took office July 28, will likely maintain a “credible monetary policy as well as a conservative fiscal stance,” the agency said. An increase in royalties on the country’s mining industry, which the government expects will boost revenue by $1.1 billion annually, will support “robust” economic growth, it said.
“The swift and successful completion of negotiations” with mining companies “has reduced regulatory uncertainty and bodes well for the continuation of Peru’s positive investment and growth cycle,” said Fitch analyst Erich Arispe.
The yield on the nation’s benchmark 6.55 percent dollar- denominated bond due March 2037 rose one basis point, or 0.01 percentage point, to 4.71 percent, according to prices compiled by Bloomberg.
State Control
Humala, a former army rebel and one-time ally of Venezuelan President Hugo Chavez, won a June 5 runoff on pledges to boost state control of the nation’s mining and energy industry, increase social spending and fight corruption.
Peru’s bonds, stocks and currency rallied after Humala retained Julio Velarde as central bank chief and named as Finance Minister Miguel Castilla, a Harvard University-trained economist. Since taking office Humala has pledged to spur mining investment and respect all the contracts his predecessors signed with investors.
“The upgrade is a reflection of the fact that so far Humala is giving strong indications that he doesn’t want to change the economic framework,” said Carola Sandy, an economist at Credit Suisse AG, in a telephone interview from New York. “The market views Peru as a very solid investment grade country.”
In Latin America, Peru, the world’s third-largest copper and zinc producer, shares the BBB rating with Brazil, Mexico and Panama and is one step above Colombia. Moody’s rates the Andean nation Baa3, the lowest investment grade.
Peru’s debt burden as a percentage of gross domestic product will decline to 22 percent in 2011, Fitch said, comparing it with the 40 percent median for BBB economies. The ratio was 24 percent last year and 46 percent in 2001.
Increased social spending under Humala “will be done in the context of fiscal prudence, thereby supporting positive debt dynamics,” Fitch said.
Peru’s bonds are attractive to foreign investors as they offer “good opportunities for profitability at low risk,” Castilla said today in an e-mailed statement.
Investors from Asia, the U.S. and Canada are looking at investing in Peruvian infrastructure, mining and energy projects, Castilla said.
Link to Statement:{NSN LUGJBH3PWT1C <GO>}
--Editors: Marie-France Han, Glenn J. Kalinoski
To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
