Wall Street Wowed by Ex-Chavez Ally as Sales Surge: Andes Credit

Wall Street’s biggest banks are turning Peru into the fastest-growing corporate bond market in Latin America as they capitalize on debt investors seeking to profit from the nation’s economic boom.

Sales from Alicorp SA, the nation’s largest consumer goods company, to miner Cia. Minera Milpo SA have helped push issuance to $5.9 billion in the past year, almost doubling the amount of dollar-denominated Peruvian corporate bonds outstanding to $12.3 billion. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. have won the most mandates, arranging 72 percent of offerings as average corporate borrowing costs fell 0.62 percentage point to 4.92 percent -- lower than Brazil.

President Ollanta Humala, a one-time ally of the late Venezuelan leader Hugo Chavez, is winning over Wall Street as he contains public spending and lines up record investment in mining and energy. Propelled by an economy projected to expand 6.2 percent this year, the fastest in South America, Peru earned its best-ever debt rating under Humala as its creditworthiness in the swaps market rose to a five-year high.

“You have a country that has been doing very well, growing very steadily, has good fundamentals, offers good value, and investors are attracted to this,” Roberto D’Avola, the head of Latin America debt capital markets at JPMorgan, the third-biggest underwriter of Peruvian corporate debt in the past year, said in a telephone interview. “There are a lot of good companies just beginning to understand the benefits of accessing capital markets, of tenor, of getting larger transactions done.”

BofA Role

Bank of America has arranged 29 percent of Peru’s dollar-denominated corporate bond offerings in the past year, followed by Citigroup’s 23 percent and JPMorgan’s 20 percent, according to data compiled by Bloomberg. Goldman Sachs Group Inc., the fourth-biggest underwriter, arranged 8 percent of the offerings.

“Peru has been a major focus for us lately,” Augusto Urmeneta, the head of debt capital markets for Latin America at Bank of America, said in an e-mailed response to questions. “We’ve seen strong issuance out of the country due to low borrowing costs and investors’ appreciation for the country’s favorable economic position.”

Yields on Lima-based Alicorp’s $450 million of 10-year bonds have dropped eight basis points, or 0.08 percentage point, to 3.81 percent since they were issued March 15. Milpo’s $350 million of securities due 2023 yield 4.58 percent, down five basis points since they were sold on March 21.

Debut Issuers

“Peru is seen as a politically stable country with elevated growth, one with a good long-term outlook,” Milpo’s head of finance, Persio Morassutti, said in an e-mailed response to questions. The offering “will allow us to execute our liability management plan, ensure funding for a portion of capital expenditures in 2013 and 2014, and guarantee us a minimum cash balance supporting the liquidity objectives of the company.”

Alicorp Vice President of Finance Diego Rosado didn’t respond to e-mails and telephone calls seeking comment on the company’s bond offering.

Gas Natural de Lima y Callao SA, Cementos Pacasmayo SA, Pesquera Exalmar SA and Fondo Mivivienda SA joined Milpo and Alicorp in selling bonds abroad for the first time this year. Banco de Credito del Peru, the country’s biggest lender, and BBVA Banco Continental SA also returned to the market with new offerings.

Default Swaps

The cost of protecting Peruvian government dollar bonds against non-payment for five years with credit-default swaps fell to the lowest level since 2008 on April 11. It dropped one basis point to 89 basis points at 2:52 p.m. in Lima.

Peru, the world’s third-largest copper and zinc producer and No. 1 in fishmeal, has lined up a record $53 billion in mining investment commitments and $20 billion in energy projects over the next decade, according to the Energy & Mines Ministry.

Since taking office in July 2011, Humala has met with investors around the world to tout metal, energy and transportation projects as he seeks to prolong an investment boom that’s tripled the size of Peru’s economy in a decade to about $200 billion last year.

While on the campaign trail in a failed run for the presidency six years ago, Humala accused foreign companies of looting the country, said he would renegotiate contracts and proposed following Venezuela’s lead in increasing royalties and taxes on oil output.

Moody’s Rating

Moody’s Investors Service boosted Peru’s rating to Baa2, the second-lowest investment grade, in August. The country is ranked BBB by Standard & Poor’s and Fitch Ratings. More than $5 billion, or 86 percent of issuance from the country in the past year, has been rated BBB- or above by Fitch, according to data compiled by Bloomberg.

“One of the factors that triggered increased interest from local issuers into international capital markets has been rating upgrades from international agencies,” Pedro Chirinos, the vice president for corporate finance and capital markets at Citigroup’s Peruvian unit, said in a telephone interview. “We don’t see issuance slowing down. We expect some stabilization in a few years, but before that we will continue to see new names come to market.”

The extra yield investors demand to own Peruvian dollar bonds instead of U.S. Treasuries climbed three basis points to 131 basis points today, according to JPMorgan index data.

The yield on the Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 was little changed at 3.72 percent, according to data compiled by Bloomberg. The sol depreciated 0.2 percent to 2.5920 per dollar.

‘Logical Progression’

“The country’s sovereign risk is low, and going forward, Peru will continue to get upgraded,” Peter Lannigan, managing director and head of emerging-market strategy at CRT Capital Group LLC, said in a telephone interview from Stamford, Connecticut. “I like the country. It is part of the logical progression we’ve seen in the asset class a few times before. You’ve had companies issuing bonds for a few years, but it’s been mostly the large, well-known firms.”

Klaus Spielkamp, a fixed-income trader at Miami-based brokerage Bulltick Capital, says the decline in yields of Peruvian corporate bonds is starting to make the debt less attractive to investors.

Brazil Yields

At 4.92 percent, the average yield on notes sold by Peruvian companies is 52 basis points less than that of Brazilian peers and the lowest in Latin America after those of Chile and Colombia, according to JPMorgan indexes. Peru’s corporate notes yielded 0.8 percentage point more than Brazilian company debt when Humala was elected president in June 2011.

“My clients want a better yield, so they don’t look at countries like Chile, and they’re starting to look less at Peru as well,” Spielkamp said in a telephone interview.

Transportadora de Gas del Peru SA hired Bank of America and Morgan Stanley to arrange meetings with bond investors, said a person familiar with the company’s plans who asked not to be identified because terms aren’t set. The company may sell as much as $850 million of notes, according to Fitch.

“Companies are ‘‘driven by the fact they can lock in low financing costs and tenor,’’ JPMorgan’s D’Avola said. ‘‘This is a phenomenon that we think is going to continue in the near future.”

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