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Lowest Latin Yields Spurring Peru Corporate Offerings

Finance Minister Ismael Benavides
Peru's Finance Minister Ismael Benavides. Photographer: Jin Lee/Bloomberg

Peruvian companies will step up bond sales in international markets after a record year in 2010, taking advantage of the government’s sale of $1 billion of 40-year debt at the lowest long-term yield in Latin America, Finance Minister Ismael Benavides said.

Mining companies will lead offerings next year, Benavides said, after the yield on Peru’s 2050 bonds rose to 5.92 percent at 3:05 p.m. New York time from 5.875 percent when they were sold last month, according to JPMorgan Chase & Co. The yield on the longest maturity Peruvian dollar bond was the lowest for any regional issue of 30 years or more, the Finance Ministry said in an e-mail on Nov. 10.

“We understand there are a few corporate private mining companies planning to issue,” Benavides said in an interview in New York yesterday. The government’s sale “will also be a good benchmark for private issuers,” he said.

Peruvian companies have raised $2.5 billion selling bonds overseas this year, compared with $371 million in 2009, according to data compiled by Bloomberg. The nation’s banks were the biggest issuers, led by an $800 million offering from Banco de Credito del Peru, the country’s top lender, on Sept. 9.

IFH Peru, which helps finance trade between Peru and China, plans to sell as much as $100 million of debt as soon as this month. The company may pay a yield of about 7.25 percent on the re-opening of its 8.625 percent notes due in 2019, according to a person familiar with the transaction.

‘Positive Fundamentals’

Peruvian corporate bonds are the best performer this year among Latin American countries, with a 22 percent return, according to JPMorgan’s CEMBI index. Mexican bonds returned 14 percent, while debt issued by Brazilian companies returned 13 percent, according to JPMorgan.

“The story in Peru has been quite positive,” said Natalia Corfield, a corporate debt analyst at ING Groep INV in New York. Peruvian corporations “are in a country that’s growing with positive fundamentals, and they offer an opportunity to diversify from Brazilian and Mexican companies.”

Peru’s economy grew 8.5 to 9 percent this year and may expand 7 percent or more in 2011, Benavides said. The nation’s inflation rate will end the year at 2.2 percent, within the central bank’s 1 percent to 3 percent target range, he said.

Debt Issues

The Peruvian government’s $2.5 billion dual-currency debt sale last month was the country’s biggest ever and the $1.5 billion portion in sol bonds was the largest local currency debt sale in the international market by a Latin American government.

The extra yield investors demand to own Peruvian government debt over Treasuries fell 24 basis points, or 0.24 percentage point, to 141 this year, compared with a drop of 31 basis points for bonds issued by Brazil, according to JPMorgan’s EMBI+ indexes. Investors demand 161 basis points more to own Brazilian debt than U.S. Treasuries. Both Peru and Brazil are rated BBB-by Standard and Poor’s and Fitch Ratings and Baa3 by Moody’s Investors Service, the lowest investment grade.

Companies will issue debt in the first quarter and avoid sales in April on concern the nation’s presidential election will drive up borrowing costs, Benavides said.

“We had quite good demand for the banks and I believe they will continue to issue,” ING’s Corfield said. “You have a lot of Brazilian banks coming to the market, it’s a way to diversify your risk.”

The government will use $1.5 billion in revenue from last month’s issue to pre-pay for “some expensive debt,” and the rest for infrastructure investments, Benavides said. “What we tried to do with this bond issuance was to cover part of our needs for next year, at least until the third quarter,” he said.

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