Peru: Locals ride the equity wave
Low interest rates key factor; All eyes on Cementos Pacasmayo
This year is predicted to be an active one for Peruvian companies issuing equity, but with few large firms the outlook for international deals is less bullish. “There is a lot of pent-up demand in Peru,” says Facundo Vazquez, managing director in Latin American ECM for Bank of America Merrill Lynch in New York. “There hasn’t been any significant activity since 2007, when Intergroup did its IPO, and there have been only a couple of smaller deals since then. So, that little activity, coupled with the macroeconomic outlook for strong GDP growth, makes Peru the country to watch this year.”
Peru’s GDP is forecast to grow at 5.3% in 2012, which is the highest in Latin America – the average forecast for countries in the region is 3.2% and compares with the US forecast for 1.9%. The country also has low real-interest rates, which should foster appetite from the country’s quickly growing pension funds.
“Peru has very low interest rates, which bodes well for consumer companies and infrastructure companies,” says Vazquez. “It has also created discipline within the financial institutions, and Peru has a very good set of banks that have to compete and be profitable in the low-interest-rate environment.
“Obviously, that is raising interest for investors, who are now making visits to the country, along with bankers, to discuss valuations. All these factors are going to trigger a new wave of equity deals in Andean countries, and Peru in particular.”
Peru's estimate growth rate this year
Cementos Pacasmayo, a cement producer, is looking to conduct a debut listing of American depositary receipts (ADRs) early this month. The company has a very illiquid listing on the Lima exchange, so this is technically a follow-on deal but has the characteristics of an IPO. The price range for the 20 million ADRs, representing 100 million common shares, is worth $280 million using the midpoint of its price range of $11.50 to $13.00 (assuming the greenshoe is exercised). However, the other deals are smaller and expected to be local. Mining company Dia Bras Exploration, state-owned power utility Empresa de Generación Eléctrica del Sur (Egesur) and port operator Andino Investment Holding have all filed to issue shares on the Lima exchange.
Meanwhile, Peru’s oil company, Petroperu is seeking bookrunners for a 2012 equity sale of up to 20% of the company. That size would make it a natural candidate for an international transaction but for political reasons it is likely to remain local.
More than local
“The first wave will be predominantly smaller, local deals. But at some point – and we saw this in Chile and Colombia – companies will start to look for liquidity from international investors and that means they will do 144As and eventually SEC-registered deals,” says Vazquez. “To complement this largely local wave of equity deals, Peru has some large companies in specific sectors, such as mining, which, if they decide to move forward, will do international offerings.
“Banks will need to be selective in their investments in the country but also need to have the local knowledge – we don’t expect to see a boom of equity offerings mandating international banks.”
Pacasmayo’s SEC-registered deal is being watched carefully by international bankers. The company is seeking a premium of about 30% to global and Latin American comparables from international investors. If that deal is successful, it will go some way to countering the locals’ argument that it’s not worth the effort and cost for the smaller deals to do an international marketing effort.