The Republic of Peru issued the longest dated Latin American deal so far this year with a $1bn retap of its 2025 bonds this week, in order to finance an early repayment of Paris Club debt.
Peru, rated BBB-/Ba1, announced the re-opening of the 7.35% notes on Monday morning, through leads UBS and JP Morgan. The issuer retapped its 7.35% SEC-registered notes at 103.827 to yield 6.95%, or 343.6bp.
Bankers on the deal sent out pricing guidance in the 7% area, representing a 32bp concession given the trading levels of the 2025s. The bonds were first issued for $750m in July 2005 and re-opened for a further $500m that December.
The deal attracted $4.7bn of demand, which allowed the leaders to price tightly: the re-opening concession stands around 27bp, said bankers close to the deal. Analysts say the 2019s sold in March Perus first external bond issue in two years would have been easier to tap due to the shorter maturity date and greater secondary market liquidity. However, leads say the 2025s were chosen as this bond was launched specifically to repay G7 creditors and the strong order book confirmed investor appetite for the rare investment grade credit. The proceeds from the debt sale will be used primarily to repay non-concessional Paris Club loans to France and Italy. "There was great demand for a great credit that has fared very well in this crisis," said a banker on the deal. Real money accounts dominated the order book while 80% of investors were based in the US and the rest were primarily in Latin America.
Despite the rarity of Latin sovereign credit, emerging market issuers have found it nigh on impossible to issue long dated bonds. In February, Mexico was forced to scrap the 21 year tranche of its bond issue and instead issued a five year $1.5bn benchmark. This event disheartened Latin American markets by highlighting the divide between prolific US high-grade borrowers and emerging sovereigns deprived of market access for new long-dated paper.
As a result, market players have seized on this weeks issue to hail the markets hospitality for high quality issuers. "Until this week, no issuer really tested the long end of the yield curve so its a big positive that the deal attracted so much demand," said a Latin American debt syndicate official in New York.
In recent years, Peru has carried out a flurry of active liability management programmes, significantly reduced its indebtedness, strategically extended its maturities and boosted liquidity in its yield curve. It is one of the few countries in the world expected to grow this year with the IMF forecasting a 3.5% expansion.