by Stephan Pouyat, Global Head of Capital Markets and Funds Services, Euroclear

Peru's huge step to attract institutional investors and create a sustainable domestic capital market

It’s always gratifying when something you’ve worked for over a long period comes to fruition. That sums up what recently happened in Peru.

In July, the country issued its first Euroclearable local currency-denominated bond. Around 70% of the 3 billion-plus USD issue (denominated in Nuevo sol) was taken up by non-resident investors.

This is a major part in its effort to build a sustainable local financial structures – an important objective for countries looking to reshape their economic landscape.

Euroclearability made it easier than ever before for international investors to buy Peruvian debt, and they appear to have grabbed the chance with both hands.

At Peru’s Ministry of Economy and Finance, José Andrés Olivares, the director of financial markets management, called the issue "a real milestone". He told journalists: "This allowed us to deepen and add liquidity to the Nuevo sol-denominated public bond market and attract more than 110 different accounts."

Indeed, at this time, Peru was still exposed to foreign currency exchange and many international investors could not access Peru's capital markets directly.

We were happy to be asked to work with Peru's Ministry of Finance and Economy to make the market Euroclearable. A key part of this was helping to identify some key changes to the legal and regulatory framework.

What does Euroclearable mean?

A capital market becomes Euroclearable when it establishes a settlement link with Euroclear, the international central securities depository (ICSD), and adopts the legal, regulatory and other market standards that provide the same ease of access, degree of asset protection and settlement finality that international investors would experience in any well-established market.

"Capital market reform for the good of the market"

Market liquidity brings investors

Peru’s strategy to 'solarise' its debt and make it Euroclearable has been well rewarded as today's liquidity of the Euroclearable bond is 10 times better in comparison to the average liquidity of old soles bonds. At the same time the issuer has seen its cost of borrowing reducing by 20 to 25 bps.

By issuing its bond via Euroclear, the Peruvian Ministry of Economy and Finance aimed at attracting both local and international investor communities.
And it succeeded: not only the demand for this new bond was huge, with subscriptions up to 9 billion USD, but also non-resident investors' participation reached a record level of 70% ! Similar domestic government bonds issued before by Peru reached an average 33% non-resident investors' participation.

By facilitating this inflow of capital into Peru and increasing the demand for the bond, we are helping the Peruvian government finance its infrastructure projects such as new roads, airports, port, etc. at a lower cost, which ultimately contributes to the local socio-economic development and jobs creation.

This deal has also led the index providers to look again at Peru. JP Morgan’s Emerging Marketing Index has indicated that inclusion of the recent bond issue will see Peru’s weighting in its emerging markets bond index rise by 41 basis points, to 2.7%, allowing international investors to increase their holdings of Peruvian government debt accordingly.

Creating a sustainable future

In the future, Peru wants the government bond market to serve as a benchmark for the country’s corporate bond issuers. Alfredo Thorne, the previous Minister of Economy of Finance, said he would also like to see the Peruvian firms, issuing in the foreign markets, bring that debt back to the local market.

It’s all compelling stuff in my view.


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by Stephan Pouyat

Global Head of Capital Markets and Funds Services, Euroclear

As Global Head of Capital Markets and Funds Services at Euroclear, Stephan Pouyat cares passionately about aligning the financial sector with moves to accelerate development among the world's emerging economies.