By Drew Benson
Dec. 19 (Bloomberg) — Peru is advancing with plans to sell its first foreign bonds in almost two years to “demonstrate the economy’s strength” after receiving investment-grade ratings, said Betty Sotelo, the Economy Ministry’s debt director.
The Andean country, the world’s largest silver miner and third-biggest copper producer, would follow Mexico, which yesterday became the first developing nation to tap international debt markets since the global credit crisis deepened in September with the collapse of Lehman Brothers Holdings Inc.
Peru is also seeking to establish benchmark bond yields that will help companies sell debt abroad, Sotelo said in an interview in her office in Lima late yesterday. The government has no pressing need for the cash and doesn’t need the funds to help finance a $3 billion economic stimulus plan that President Alan Garcia announced last week, she said.
“We’re not desperate; we don’t have to place debt to meet financing needs,” Sotelo said. “The government’s goal is to demonstrate the economy’s strength.”
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising Peru on the bond sale, she said. The government will wait until at least January to carry out the sale, she said.
Economy Minister Luis Valdivieso, who returned last night from a weeklong trip to meet with investors in New York, Boston, London and Madrid, said in October that the government planned to sell as much as $600 million of 30-year bonds.
Sotelo said the sale could be bigger because emerging-market borrowing costs have fallen since Valdivieso spoke. Last week, the government authorized a dollar-denominated bond sale of up to $1.35 billion next year.
The yield on Peru’s 6.55 percent bonds due in 2037 has sunk 4.3 percentage points from an Oct. 23 high to 7.54 percent, according to JPMorgan Chase & Co. That yield remains 67 basis points, or 0.67 percentage point, above the 6.87 percent yield on Sept. 15, the day Lehman collapsed.
Pablo Secada, who resigned as public credit director under Sotelo last month, questioned the decision to tap markets soon.
“Paying high prices when you don’t need funds is not necessarily a sign of strength, it’s excessive,” said Secada, who’s now chief economist at Lima-based Peruvian Institute of Economics. “I’m not so convinced by the argument that being able to sell bonds during a crisis distinguishes you from other emerging market countries.”
Mexico sold $2 billion of 10-year bonds yesterday to yield 5.98 percent, or 3.9 percentage points above Treasuries. Other countries will follow Mexico “as early as early next week or in January,” said Elizabeth Dennis, head of the Latin America debt syndicate desk at Morgan Stanley in New York. Morgan Stanley managed Mexico’s sale with Goldman.
“If borrowers were skeptical about the demand that they might receive, Mexico has certainly paved the way for them,” Dennis said in an interview.
Sotelo declined to provide more details on Peru’s sale plans. The sale would be the country’s first in international markets since it issued $1.2 billion of the 6.55 percent bonds in March 2007.
Peru won an investment-grade rating of BBB- from Fitch Ratings in April and Standard & Poor’s in July as surging commodity exports fueled growth and helped the country pay down foreign debt. Moody’s Investors Service rates the debt Ba1, one level below investment grade.
While growth is poised to slow as the global slump drives down commodities from their July record high, Peru will remain one of the world’s fastest growing economies, the International Monetary Fund said last week.
The IMF predicts Peru’s economy will expand 6 percent next year, matching forecasts by Citigroup Inc. and the Peruvian government. Citigroup said this week that it expects Peru’s economy outperform all major economies in Latin America. Peru’s $109 billion economy has grown more than 9 percent for four straight quarters.