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Capital Markets

Peru: Peru to beat Brazil to investment grade rating

Country is now a net creditor, paying off external debts and developing local markets.

With the market attempting to weigh up when Brazil will become an investment-grade credit, another Latin American sovereign, Peru, could enjoy that status as early as the year-end, according to analysts.

Moody’s Investors Service upgraded Peru’s foreign-currency bond rating to Ba2 from Ba3 last month – still two notches below investment grade. Standard & Poor’s, though, has the Andean nation at BB+, which is just one level below.

Peru is now a net creditor and is paying off external obligations. In May, for example, it reached an agreement with the Paris Club of official creditors to prepay $2.6 billion of the outstanding $5.6 billion debt stock. The government is also relying less on the external markets to fund itself and looking more at developing its local capital markets.

Best candidate

"All of these factors are the reasons why Peru is one of the best candidates in the region for elevation into the investment-grade club," says Walter Molano, head of research at BCP Securities in Greenwich, Connecticut. "With a rating of [BB+/Ba2], Peru should vault into the inner circle by the end of this year."

Mauro Leos, Moody’s vice-president, says: "External debt ratios have moved towards those observed in other Ba-rated countries, while the share of foreign-currency-denominated government debt and the degree of financial dollarization in the Peruvian banking system have reported steady reductions."

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