Peru Wants to Issue Century Bonds Only a Few Days After Political Turmoil

RIO DE JANEIRO, BRAZIL – Peru is preparing a century bond in dollars after authorizing the issuance of debt of up to US$4 (R$21.6) billion to help rein in the country’s coronavirus outbreak and soften its economic impact, the government and market sources said on Monday, November 23rd.

Refinitiv’s IFR financial service reported earlier that the world’s No. 2 copper producer is preparing to issue new dollar debt in three tranches, which will include the 100-year bond.

The sale is a test of investor confidence in a nation that was engulfed in turmoil this month after the impeachment of President Martin Vizcarra. His replacement, the lawmaker Manuel Merino, resigned less than a week later amid mass protests in which several young demonstrators were killed by the police. Congress later voted in centrist lawmaker Francisco Sagasti to finish out the presidential term.

Peruvian assets tumbled amid the turmoil, with the sol touching a record low last Monday, though they’ve rebounded since Sagasti’s appointment. It remains one of the safest countries in Latin America, with a sovereign spread of just 142 basis points over U.S. Treasuries, according to JPMorgan Chase & Co.

“Peru has strong external position and low level of indebtedness,” said Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York. “We expect the country to be a solid investment-grade credit despite the political volatility.”

BBVA, Citigroup Inc, Itau, Goldman Sachs and Morgan Stanley will manage the issue and have set initial guidelines in the area of U.S. Treasury bonds plus 135 basis points for a new 12-year paper; of 160 basis points for a 40-year bond and about 200 for a 100-year, according to a document filed to the SEC and cited by IFR.

Peru’s Ministry of Economy and Finance published a decree on Sunday authorizing the issuance of bonds equivalent to US$4 billion.

Revenue from the sale will help Peru combat one of the world’s worst Covid-19 mortality rates and the related financial fallout. The government sold US$3 billion of debt in April to support what was then one of Latin America’s most ambitious stimulus packages.

The nation joins countries including Argentina, Mexico, Ireland and the U.K. in selling debt that matures over a century. Argentina’s notes, which were sold in 2017, were restructured this year.

Peru itself has seen eight external defaults and restructurings since its independence in 1821, according to the book “This Time Is Different: Eight Centuries of Financial Folly.”

Source: Reuters, Bloomberg