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NEW YORK, Oct 29 (IFR) - Peru could return to the international capital markets before year-end to extend the average maturity of its debt and plug a small fiscal deficit next year, according to two investors who met with the sovereign this week.
While officials from the Andean country reiterated their preference for issuing debt in soles, they also appeared open to a potential liability management and new issue in US dollars, which some accounts still favor over local currency trades.
"Their first aim would be a local currency issue, not necessarily domestic," said a buyside analyst who attended the meetings in London. "My feedback was that we would be more interested in a liability management on their dollar curve, and I think they were open to that."
Both investors said they would expect a potential transaction to take place over the next one to three months.
Peru has typically tried to reduce its reliance on dollar funding in effort to win favor with the rating agencies, which now have the sovereign at A3/BBB+/BBB+. As a result, it has turned to domestic auctions of sol-denominated notes to meet most of its funding needs.
Some foreign investors, however, have been reluctant to take large positions in the local market due to its low liquidity.
Still, an offering of Global Depositary Notes (GDNs) - which are denominated in local currency but pay interest and principal in US dollars - could be an option on the table.
"We touched very briefly on the GDNs and my sense is that they are willing to accommodate that," said a US-based investor who met with the delegation.
Peru last used the GDN format in 2013, taking the 6.0% 2029 bond as the underlying note, but that was an extremely small issue.
From a macroeconomic perspective, Peru's prudent fiscal management and a rebound of economic growth in 2015 could help drive demand for the country's assets.
"I think the government is reasonably confident that a good portion of the factors leading to (this year's) deceleration were transitory," said the US-based investor. "They are fairly constructive about growth next year."
Peru's central bank expects the economy to expand by 5.1% in 2015, up from 3.1% this year.
Bank of America Merrill Lynch, BBVA and Morgan Stanley arranged the meetings with investors, which wrap up in New York and Boston Wednesday. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby)