It is hard to pinpoint what was most impressive about Peru’s $4 billion bond sale at the end of November.
Was it that it included a $1 billion tranche of 100 year notes – meaning the country joins the international DCM Century club? Was it the fact that despite the size of the combined three tranches it priced at historically low yields?
Or was it that this pricing was achieved despite the country being hard hit in both fiscal and health terms by the coronavirus?
Century bonds in Latin America have something of a chequered history
For many it was the fact that the bondholders shrugged off the country’s political risk – Peru had three presidents in November and the sale came shortly after country-wide protests about the impeachment of Martín Vizcarra.
This also led to the resignation of the country’s finance minister María Antonieta. Vizcarra’s successor, Manuel Merino, lasted less than a week before resigning in the face of those protests, and former World Bank official Francisco Sagasti took over the helm.
Century bonds in Latin America have something of a chequered history.
Most notably Argentina’s – issued in 2017 – has just been restructured, Petrobras’ $2.5 billion deal in 2015 has fared badly and even Mexico’s 100 year Euro-denominated trade (also in 2015) attracted criticism for coming in too cheap.
Duration offer
However, a Peruvian official denied accusations that its decision to become the fourth Latin American sovereign to issue such a deal was, in effect, ‘showboating’, insisting that it was a good time to offer investors duration.
The fact that Peru’s century deal is the region’s lowest yielding to date adds credibility to that claim. The century bonds priced at US Treasuries plus 170 basis points, the lowest ever spread on bonds with this tenor from an emerging markets credit.
There were certainly exogenous factors to explain the deal’s success. Peru’s public credit team, which was advised by BBVA, Citi, Goldman Sachs, Itaú and Morgan Stanley, certainly timed the transaction well to take advantage of international investors’ liquidity.
Low-for-longer global interest rates and a weakening dollar have increased the appeal of stronger EM credits, and total demand topped $15 billion.
However, the domestic fundamentals that Peru has built in recent years – the country is now the second-highest rated Latin American sovereign (after Chile) and its credit-default swap spread over the US is just 150bp over UST – was crucial in enabling the country to take advantage of extremely benign markets.
It is a good reminder for some of its neighbours that it doesn’t really matter who is in charge – and what their stated plans might be.
Peru is the largest Latin American nation to have avoided a downgrade in any of its three foreign currency credit ratings since the outbreak of the coronavirus pandemic.
Markets reward actions, not words.
