INTERVIEW: Peru’s new debt boosts COVID-19 fighting resources to $13 billion
April 20, 2020 |
Lima hunting for spare cash held by state-owned enterprises
Peru’s record-breaking debt offering last week, where it attracted more than $25 billion in orders for $3 billion worth of new debt, is but one part of its efforts to raise cash to help in its battle to contain the COVID-19 pandemic.
The government is scouring the accounts of state-owned enterprises (SOE) where spare cash may be held in an effort to maximize the amount of money it has on hand while not issuing more debt than it needs, José Olivares, head of the treasury department at the Ministry of Economy and Finance (MEF), told LatinFinance in a telephone interview.
Other areas where it is searching for extra cash is tapping savings and credit lines with multilateral lending institutions, in addition to looking at the SOE accounts.
“Peru has designed one of the strongest packages in the region to fight the COVID-19 crisis. It represents 12% of our GDP,” said Olivares.
Prudent fiscal policy in the last 30 years has provided the country with a strong fiscal space to fight off the effects of the pandemic, Olivares said.
“With the $3 billion of the issuance, we have in hand a liquidity mass of $12 to $13 billion dollars for this year. That is more than 6% of our GDP,” he said.
The other sources of liquidity include $5.4 billion from the country’s fiscal stability fund, about $3 billion worth of contingent credit lines with the Inter-American Development Bank and the World Bank, and the reassignment of cash that SOE's have accumulated over the years, Olivares said.
“We have many public companies with excess liquidity, and we have been reordering these cash resources to optimize their use,” he said.
The $3 billion bond issuance was structured for prudency, to assure a buffer, Olivares said.
“Large international investors had been inquiring about our issuances for two weeks,” he said. “There was a very large demand.”
The deal had been ready to execute for three weeks, but the government wanted to wait for the market to stabilize. “We didn’t want to pay those high premiums for new issuances that we were observing in a volatile market,” Olivares said.
“Demand was beyond what we ever expected,” said Olivares. “Yields are a record low in the history of Peru, and our premium for new issuance was negative for one tranche and flat on the other.”
“Global investors are telling us that the markets are seeing us as the new risk-free asset of Latin America,” said Olivares.
The $1 billion worth of five-year bonds maturing January 23, 2026, priced at 100.002, putting the yield at 2.392%. The $2 billion worth of 10-year notes, maturing January 23, 2031, priced at 100.002, placing the yield at 2.783%.
Indeed, similarly rated Panama came to the market three weeks ago with a $2.5 billion deal carrying a 4.5% coupon. It’s order book was around $6 billion, sources said at the time.
Order books for Peru’s deal were a record $25 billion, with more than 400 foreign investors making bids. Roughly 50% of demand came from the United States, 30% for Europe, and the rest came from Latin America, Olivares confirmed.
“The odds that we go back to market this year is very low,” he said.