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Saturday, September 1, 2012

Peru’s Rating Outlook Raised by S&P as Mining Boosts Growth

The outlook on Peru’s debt rating was raised to positive from stable by Standard & Poor’s as investment in mining, energy and infrastructure bolsters the Andean nation’s prospects for economic and export growth.


Mining investment will sustain expansion even as community protests slow some projects, according to the ratings company, which a year ago raised the country’s foreign debt one step to BBB, the second-lowest investment grade.

Latin America’s fastest-growing economy expanded 6.1 percent in the first half of this year as the government accelerated investment in public works to offset a drop in metal exports.

Companies including Xstrata Plc and Anglo American Plc have said they’re planning $50 billion of mining investment in Peru during the next decade.

Peru’s rating could be raised “if the majority of the large announced investments are completed, underpinning growth prospects and higher export volumes, which would mitigate a possible fall in metals prices,” Standard & Poor’s said.

Net debt will fall to 3 percent of gross domestic product by the end of 2015 from 8 percent this year, even as President Ollanta Humala increases government spending on social programs, the ratings company said. Humala pledged July 28 to award $10 billion in infrastructure contracts next year.

Economic Expansion

Peru’s $176 billion economy will expand 5.5 percent this year, the fastest in the region, according to International Monetary Fund forecasts. Standard & Poor’s projects 5.5 percent growth for Peru over the next three years.

The country’s credit rating was raised by Moody’s Investors Service one level to Baa2 on Aug. 16. Fitch Ratings also ranks the country the second-lowest investment grade.

The yield on Peru’s March 2037 dollar bonds fell to a record low of 3.60 percent Aug. 3 after economic activity rose to a 10-month high. The yield fell three basis points, or 0.03 percentage point, to 3.83 percent in trading today.

The price rose 0.7 cent to 142.95 cents per dollar. The sol was unchanged at 2.611 per U.S. dollar, according to Deutsche Bank AG’s local unit.

The currency earlier touched 2.61, the strongest level since 1997, data from Peru’s financial regulator show.

“The outlook for Peru remains extremely strong, with a great deal of policy flexibility, and that provides comfort to investors in this still risky global backdrop,” Aryam Vazquez, a New York-based economist at Wells Fargo & Co., said in a phone interview.

bloomberg.com

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