BBVA Continental's direct offering last month of $500 billion senior unsecured eurobonds signals a new trend in Peruvian bond issuances.
The eurobonds are some of the first Peruvian bonds to be offered directly to foreign investors. A more favourable tax framework for foreign investors, along with more workable registration requirements, should encourage more of these issuances by banks and corporates.
Peruvian banks and companies have greater incentive to offer eurobonds following legislative changes last year. Law 29645 lowered the tax rate on Peruvian-source income for foreign investors and entities. Non-Peruvian investors were taxed at a rate of 30% on Peruvian bonds before the law became effective on January 1 2011. Now they are taxed at 4.99%.
BBVA's eurobonds were offered to both Peruvian and foreign investors in the US, Europe and Asia. Miranda & Amado Abogados partner Juan Luis Avendaño, Peruvian counsel to BBVA, said an amendment to public bond offering rules allowed the bank to register all the shares under US rule 144a.
"In the past you either offered publicly in Peru or you tapped international markets," Avendaño said. "It was very difficult to do both at the same time. Now it's easier because you can do a public offering locally using the same set of documents, which is a great help."
Peruvian issuers previously used offshore special purpose vehicles as a way to raise money from foreign investors uninterested in paying a 30% tax on bond yields. Issuers might have had a more difficult time getting an investment grade rating using this type of structure.
The 10-year eurobonds received a BBB+ investment grade rating from Fitch Ratings, the same rate as the bank's foreign currency issuer default rating. Avendaño believed the rating would only get better in the future, along with Peru's sovereign rating.
"This year, we've seen the largest number of international issuances by Peruvian companies," Avendaño said. "Peruvian companies are growing significantly, but local markets are falling short of financing needs."