Bloomberg News

Peru Sells $1.1 Billion in First Overseas Debt Issue Since 2010

January 26, 2012

Jan. 25 (Bloomberg) -- Peru sold $1.1 billion of bonds in the country’s first overseas offering since 2010.

The Andean nation sold $500 million more of its 5.625 percent dollar bonds due in 2050 to yield 5.37 percent, or 225 basis points more than similar-maturity U.S. Treasuries, according to a person familiar with the transaction. It also issued $600 million more of its sol-denominated debt due 2031 to yield 6.875 percent, said the person, who asked not to be identified because he’s not allowed to speak publicly.

The sale comes eight months after Peru first shelved plans to tap international markets because the country’s presidential elections and turmoil in European financial markets curbed investor demand. Brazil, Colombia and Mexico have also sold bonds overseas this month as growing demand for emerging-market securities pushed down borrowing costs.

“Latin America continues to be in a very positive investment light,” Enrique Alvarez, head of fixed-income research at IdeaGlobal, said by phone from New York. “As matters worsen in Europe, that accelerates the trend of investors looking for what are perceived to be higher yields in safer sovereigns.”

Peru sold $1 billion of notes due in 2050 in November 2010. The yield on the securities rose four basis points, or 0.04 percentage point, to 5.34 percent at 3:47 p.m. in Lima, leaving it up 22 basis points in the past month.

‘Additional Supply’

Yields rose on longer-maturity Peruvian bonds “mostly because of the additional supply” from today’s issue, said Daniel Chodos, a New York-based strategist with Credit Suisse AG, in an e-mail.

The sol weakened 0.1 percent to 2.6940 per U.S. dollar, from 2.6920 yesterday, according to Deutsche Bank AG’s local unit.

Fitch Ratings raised Peru’s foreign-debt rating to BBB, the second-lowest investment grade, from BBB- on Nov. 10, citing moves by President Ollanta Humala to negotiate an increase in mining royalties and maintain economic policies that fueled a decade of region-beating economic growth.

Rising public and private investment will spur 5.5 percent growth in Peru this year, the fastest in the region, after a 6.8 percent expansion last year, central bank President Julio Velarde said Dec. 16.

Humala’s Cabinet

South America’s sixth-largest economy has grown an average 6.4 percent annually in the past decade as rising demand for the country’s copper, gold and natural gas reserves lured foreign investment.

Humala, a former army officer who took office July 28, revamped his cabinet last month as he seeks to speed up the resolution of social conflicts slowing investment in new mines. Peru is the world’s number three copper and zinc producer and sixth in gold.

“It would have been unthinkable six or seven years ago that Peru would be able to sell 40-year bonds,” said Aldo Ferrini, the head of investments at AFP Integra, the country’s second-largest private pension fund. “It shows Peru’s an issuer that respects the rules of the game and is striving to become a more developed country.”

The government probably offered 2031 sol-denominated bonds payable in dollars as it seeks to increase the proportion of public debt in local currency while averting a surge in demand for soles from investors participating in the offering, Ferrini said. Integra is among the bidders in today’s offering, he said.

“Peruvian papers are as sought after by locals as they are by foreign investors,” he said.

--Editors: Glenn J. Kalinoski, David Papadopoulos

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net; John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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