This content is from: Local Insights

The use of Rule 144A by Peruvian investors

Oscar Arrús
Over the past 10 years, infrastructure and public service projects in Peru have increased both in number and in size. These projects are mostly carried out through concessions: government contracts signed with private companies through which they are granted the right to operate such projects and receive the cash flows they generate.

The start-up capital required to perform these contracts is usually provided by private investors, either through offerings in the securities market or syndicated loans provided by multilateral entities or private banks, and secured by the cash flow generated by such projects.

One of the most important developments in project finance in Peru is that local corporations are resorting to international offerings under Rule 144A and Regulation S as a means to finance their projects. These regulations allow a company to carry out private offerings of securities to institutional investors in the United States, and to resell those securities to any investor abroad or in Peru, without having to register such securities with the Securities Exchange Commission.

However, even though companies will use Rule 144A to carry out the offering and will issue securities available for purchase in the United States, most of the offered securities will usually be acquired by Peruvian private pension fund managers, authorised to invest in offerings carried out under this format.

This shows that local investors are willing to invest in infrastructure projects in Peru, but that they prefer to do so under an international offering subject to Rule 144A and Regulation S rather than a local public offering. The reason for this is the security that international guidelines and regulations provide, and it is a signal to the local authorities that the securities market needs to reform if it is going to compete against international offerings.

Oscar Arrús

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