Banco de Credito del Peru (BCP), a pro in the future flows world, is poised to price a deal backed by diversified payment rights (DPRs) shortly. Two of its peers that have yet to tap this market, BBVA Banco Continental and Interbank Peru, are reportedly planning debuts. Why this spark of activity from Peru?
For one, cost of funding is attractive right now for DPR issuers in general, as long as they can get their deals comfortably into investment-grade terrain. A spurt of issuance from a handful of Brazilian banks in March and April attest to this. "DPRs are a very accepted asset type," said Maria Muller, senior credit officer at Moody's Investors Service. "We've seen a fair amount of issuance already."
The trend's clear: once the overseas spigot of unsecured funding gets tightened, emerging market banks switch to securitization.
In the case of BCP, which has Wachovia and Standard Chartered leading a $150 million, seven-year deal due this week, there's a long history of DPRs - it was one of the first originators in Latin America to securitize those flows. It should follow then that the bank has a reliable investor base. But after the fashion of recent years, BCP opted to wrap deals in 06 and 07 via Standard Chartered, easing away from the triple-B buyers that had been its bread and butter. BCP's current deal, which is unwrapped, is reportedly being hawked to market investors. The question is whether the buyside crowd for this paper is open for business and ready to meet BCP eye-to-eye on pricing in this much tighter environment.
Other DPR transactions earlier this year were retained or dropped into arranger conduits, save for a $190 million, seven-year from Santander. BCP's deal, expected to be allocated between a floating- and fixed-rate piece, received split ratings of A-' and Baa2' from Fitch Ratings and Moody's. Prior to the transaction, BCP had about $880 million outstanding in DPR issuance.
Meanwhile, Interbank has handed Credit Suisse the mandate to do a DPR deal, sources said, while an article from LatinFinance linked BBVA Continental with arranger Sumitomo. To be sure, these originators are seeking to take advantage of the better cost of funding. But there's more - the newcomers are seeking to tap an asset class that for both is probably growing in sync with the country's blistering rate of export expansion.
According to Peru's Central Bank, exports have risen in value from a touch under $7 billion in 2000 to $28 billion in 2007, while GDP growth has stayed ahead of 5% over the last four years. In March alone, exports hit $2.8 billion, up 32% from a year earlier, while economic growth sped to 9.3%.
BCP, for instance, saw its DPR flows hit $22.9 billion in 2007, a leap of 26% from 06 and 80% from 05.
The latest figures suggest that DPRs - which are closely tied to exports in Peru - will keep racing ahead.
In April, Peru's economy grew the fastest it has in 11 years, soaring 13.25%. Sky-high prices for the kinds of commodities that are the country's specialty - namely metals and fish meal - explain the figures.
Another plus for DPR issuers from Peru is a stronger sovereign. Last April, Fitch elevated the sovereign's long-term foreign currency rating to an investment-grade BBB-' from BB+.' But it's the only agency that has it there, with Standard & Poor's rating it BB+' and Moody's Ba1.'
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