Latin America | 15 Feb 2013
While businesses continue to draw the majority of their funds through retained earnings and bank loans, a strong global demand for Peruvian corporate debt led to a tripling in corporate bonds issued (mostly abroad) in 2012. This trend is likely to continue throughout 2013, as some corporations have already announced plans to issue bonds in the coming months.
While many Latin American countries, including Brazil, have made a strong showing in corporate bond sales in the past year, this growth is most notable in Peru. The value of corporate bonds issued rose from $1.63bn in 2011 to $5.15bn in 2012.
This growth is the result of several factors. Firstly, the global economic crisis has pushed interest rates down in the developed world, including the US, where the Federal Reserve continues to maintain interest rates at close to zero. This makes bonds from stable emerging economies considerably more attractive to investors.
Secondly, firms have found it extremely affordable to issue debt on foreign markets. Melvin Escudero, CEO of Lima-based El Dorado Investments, recently told Gestión, a local business publication, that corporate bond issues may be cheaper for Peruvian companies than bank debt.
Finally, international investors’ confidence in Peru appears to be growing. “Investors’ risk perception in regard to Peru is changing,” Guillermo Arbe, chief economist at Scotiabank Peru, told OBG. This has led not only to lower costs for Peruvian companies issuing bonds abroad, but also an increase in demand for pension and investment funds for Peruvian corporate bonds.
Bond issues in 2012 came from several agriculture and mining companies, as well as a number of local banks. One of the first issues of the year came in January when Camposol, an agro-industrial firm, sold $125m in bonds, which were issued at a 9.88% coupon rate and are expected to mature in 2017. This was the company’s first bond issue abroad.
Coazucar, a local agribusiness firm and one of the country’s largest sugar producers, issued $325m worth of bonds in July 2012, with a coupon rate of 6.38%. Orders for the bonds had reportedly topped more than $3.4bn prior to the issue.
Two of the country’s largest banks issued bonds in an effort to raise money to expand growth in personal loans and to penetrate new “un-banked” segments of the population. In August 2012, BBVA Banco Continental (Peru) sold $500m in bonds at a coupon rate of 5% that are set to mature in 2022.
Other major bond issues in 2012 will be used to finance projects in the mining sector. Volcan Compañía Minera sold $600m of bonds in January 2012 and Southern Copper placed two major bond issues in November, one for $300m with a maturity date of 2022 and another for $1.2bn, scheduled to mature in 2042. The firm plans on using these funds to increase production in its Mexico and Peru operations by 80% to around 1.1m tonnes per year.
Peruvian mutual funds are also restructuring their investments in line with the recent surge in corporate bonds. Credifondo, the largest mutual fund manager in Peru, has been selling national government bonds while seeking to increase its holdings of corporate bonds, which it believes will outperform national debt in the long term.
Meanwhile, there are several important corporate debt issues planned for 2013. The Banco Interamericano de Finanzas plans on offering $400m of bonds in 2013 in a bid to expand its microfinance operations, as microenterprise has become one of the fastest-growing segments in South America, particularly in the agricultural export and retail industries. Banco de Crédito del Perú, the largest bank in the country, has announced plans to issue an additional $250m of bonds in Chile and Colombia within the first quarter of 2013.
Additionally, BBVA Banco Continental is set to issue $300m worth of bonds at a coupon rate of 2.25% as soon as this month. The bonds are set to mature in July 2016 and the proceeds of the issue are expected to be used for general corporate purposes.
As long as interest rates remain low elsewhere, and the Peruvian economy continues to grow at a stable rate, investors’ demand for corporate bonds is likely to remain strong. This reality will provide local corporations with an opportunity to support expansion funding through a new medium that may have seemed out of reach in the past.