By Paul Kilby
NEW YORK, Aug 18 (IFR) - Peru was poised to raise US$1.25bn on Tuesday through a rare 12-year dollar bond that generated more than US$4.5bn in demand for Latin America’s first sovereign issue since July.
Global coordinators Citigroup and JP Morgan were able to push the final spread to 195bp over Treasuries, some 30bp in from initial thoughts - and far too narrow for some accounts.
Falling commodity prices and weaker regional currencies have given investors pause for thought over emerging market assets, particularly those from countries such as Peru that export commodities to China.
“In EM it is hard not to be linked to China risk, but we already have a lot of China-related risk and at this (final pricing) level we didn’t think it attractive,” said Ricardo Adrogue, head of emerging markets debt at Babson Capital.
The country’s Single A rating and the scarcity value of its debt were seen compensating for some of those risks, however.
And at 195bp, the Andean nation was seen offering a relatively decent premium to its existing 2025s, which were trading at a G-spread of around 158bp-162bp.
It was also about 20-25bp over the 170bp-175bp fair value level that one banker was calculating for a new 12-year.
Peru is also seen as having some of the strongest fundamentals in Latin America, a region whose economies are suffering from sub-par growth.
“People are still more bullish on Peruvian growth than growth in Mexico in the next few years, even with energy reforms,” a banker away from the deal told IFR.
Mexico’s benchmark 2025 has been trading at a G-spread of around 165bp.
Peru is also one of the few Single A rated sovereigns in Latin America and, as an infrequent issuer, it enjoys a certain rarity value among investors.
“There is always a bid for Peru,” said one strategist.
Bankers believe Peru hopes to raise funding ahead of any potential volatility stemming from a possible US rate hike following the FOMC meeting that concludes on September 17.
Pricing is expected later on Tuesday. Proceeds are going toward pre-funding 2016 requirements, according to an SEC filing. (Reporting by Paul Kilby; Editing by Marc Carnegie)