Peru saw the launch of the country's first asset-backed program in December, when Ferreyros S.A., an independent distributor of Caterpillar equipment and trucks, tapped the local market the first issuance from its recently structured $45 million securitization program, Ferreyros PFF 1998-01.

The program was structured by Citibank Peru, which also arranged the inaugural $15 million issue.

The notes, which feature a 7.9687% coupon and a AAA credit rating on the local scale from Duff & Phelps Credit Rating Co., were very well received by local pension funds. "It was a very successful transaction," explained Guicela Melgarejo Fernandez, senior analyst with Duff & Phelps in Peru. "Three major facts played in favor of the transaction: investors' appetite for highly-rated paper, the global ABS experience of Citibank and the fact that Ferreyros is one of the top-10 companies in the country."

This is not Ferreyros' first time in the asset-backed market. In June 1998, the company issued Peru's first local transaction, a ground-breaking $21.7 securitization of equipment loans also through Citibank Peru (ASRI 8/10/98 p.10).

The securitization program, which follows the success of Ferreyros' first deal and the company's expectations to continue generating a steady amount of receivables, was a source of good news for potential domestic ABS issuers, but not indication of a burgeoning local market.

Despite having a securitization-friendly law and a willing investor base, domestic transactions are having a hard time taking off. In fact, aside from the two Ferreyros deals, the only other transaction to brave the market so far was a $10.5 million lease payment securitization from Banco de Credito del Peru (ASRI 2/8/99 p.11).

There is little hope that banks will take a lead. Eight out of Peru's ten largest financial institutions are subsidiaries of first-tier European financial entities and have been able to rely on their parent firms for capital.

In addition, a recession has driven banks to grant fewer credits, which means that they have small amounts of assets on their books and little need for cash.

"The Peruvian financial system currently suffers from an excess of liquidity." explained Alberto Carrera, president at Citibank Peru. "As a result, there is very little incentive for banks to securitize their assets."

The potential for securitization among non-financial issuers is also limited. The main constraints for companies are achieving the high ratings that would entice local investors to participate and amassing enough volume to securitize.

"We have been meeting with potential issuers but so far nothing concrete," said Duff & Phelps' Fernandez. "At this point, top-notch companies with sizeable assets are the most likely to be interested in a structured deal."

Bakus, a double-A rated brewery, and Quimica del Pacifico S.A. (Quimpac), a salt-producing company with $30 million in yearly global sales, are said to be working on transactions. "Securitizations are still a novelty in the domestic market," said Carrera. "There is a lot of educational work to be done."

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