This content is from: Local Insights

Where are Peruvian corporates headed?

Pablo Berckholtz

For each of the past five years, significant growth has been observed in the Peruvian economy, principally led by the mining industry and increasing commodity prices. However, despite the recent global financial crisis, a spur of growth has also been seen in certain other industries. In particular, the retail, construction and fishing industries have expanded significantly. As a result, many companies are looking into capital markets and credit financing.

In particular, the local equity market has picked up. Late 2010 saw the first initial public offering of equity securities in more than 25 years by a company incorporated under the law of Peru. More equity offerings are expected in 2011 as a way to raise capital and as part of exit strategies for hedge funds and private-equity houses that have invested in Peruvian companies.

For a number of years, the exit strategy of private-equity investors was uncertain, limiting the amount of foreign capital coming in. Fortunately, greater activity in the equity markets will convince international investors that there is a viable exit strategy for their investment in Peruvian companies and motivate private-equity players to continue to invest in Peru. In addition, as companies increase in size and need additional capital to continue growing, they should begin to explore financing opportunities abroad, something that has not been seen since the mid 1990s.

With respect to debt financing, the needs of larger companies are apparently beginning to outgrow the local market in Peru. This, along with Peru's investment grade rating, and the fact that there has been continuing economic growth in spite of the recent financial crisis, has allowed a number of companies to either access the international capital markets or look for international syndicate financing to expand their operations or to refinance on more favourable terms. A flow of debt offerings is expected in the international markets in 2011 – most of which will likely be high yield bonds.

Putting all things in perspective, however, companies are thinking ahead and looking for financing in order to be in a position to execute long-term growth plans which, in some cases, will require them to have a presence in the international arena. This will certainly be true once Peruvian companies begin looking overseas for acquisition opportunities, which is starting to occur already.

Pablo Berckholtz

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