Peru keeps up “solarization” of debt

Peru keeps up “solarization” of debt

Capital Markets Debt Corporate & Sovereign Strategy Peru

Peru will continue converting its debt into local currency, working on new mechanisms to boost its market makers program and increasing amounts of its weekly emissions in the Peruvian sol.

“The role of market makers has been fundamental,” says José Olivares, director of financial markets at Peru's Economy and Finance Ministry.

The program has helped the country move rapidly from having 5% of its debt in soles to reaching 60%, Olivares said on Tuesday at LatinFinance’s Andean Finance and Investment Forum in Lima, Peru’s capital.

“We are close to reaching our target of 70% to 75% of debt in soles,” he said.

The market makers program and “solarization” of debt began strongly in the first half of the decade, when the new Economy and Finance Minister Carlos Oliva was deputy minster between 2011 and 2015.

Demand for paper in soles is now strong enough for Peru to cover its financing needs without tapping into international markets. “We can secure what we need in the local market. International operations will be used to make the curve more efficient.”

The country has switched from monthly to weekly placements in soles, and they are always oversubscribed. The most recent PEN100m ($31m) placement on June 7 was 4x oversubscribed.

Olivares said Peru could tap international markets, but it would be linked to a liability management exercise. He also said there could be a dollar bond sale, but only to “refresh” existing debt.

“We are looking at a Euroclearable and Clearsteam, and we are going to be more active with derivatives. We could do pre-payment operations, but only if they are efficient,” he said.

Peru did its first Euroclearable placement in July 2017, with $3bn in sol-denominated bonds maturing in 2032. Peru currently has a debt-to-GDP ratio of 25.5%, the lowest in Latin America.