[PPT] - Choosing between USD or EUR -denominated debt in the international PowerPoint Presentation

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Carlos Blanco Cáceres

General Director of Indebtedness and Public Treasury Washington, October 19th 2016

Choosing between USD or EUR -denominated debt in the international markets…or go local !!!

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Composition and Election of Foreign Currency Debt

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Debt Management : Focus on Local Currency and Local Market

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Or go Local !!!

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Both short-term and long-term debt to GDP levels have fallen significantly…

Short-term and Long-term Debt

(% of GDP)*

10

20 30 40 50

1999 2001 2003 2005 2007 2009 2011 2013 2015 2016 Long Term Short Term

…The administration expects indebtedness levels to remain low and below its regional peers as the fiscal deficit continues to consolidate…

Debt Average Life

(Years)**

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 sep.-02 mar.-03 sep.-03 mar.-04 sep.-04 mar.-05 sep.-05 mar.-06 sep.-06 mar.-07 sep.-07 mar.-08 sep.-08 mar.-09 sep.-09 mar.-10 sep.-10 mar.-11 sep.-11 mar.-12 sep.-12 mar.-13 sep.-13 mar.-14 sep.-14 mar.-15 sep.-15 mar.-16 sep.-16 * Source: BCRP - Jun16 ** Source: MEF - Forecast Set 16

…while increasing the average life of its debt by printing longer- dated transactions and executing liability management transactions

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... the sources of financing of the Republic come from asset management and internal and external liabilities ...

Fiscal Stabilization Fund

Local Market

CAF BID BIRF Others Issuance of Soberanos

International Market

Issuance of Global Bonds Contingency loans Reserve size as of June 30, 2016

PEN 1,978mn; USD603mn equivalent

National Emergency International Crisis Significant shortage of fiscal income

Savings Mechanism

Assets Liabilities

USD 8,165mn Fund size as of June 30, 2016

USD 4,400mn

Debt Capital Markets Multilateral and Bilateral Loans Secondary Liquidity Reserve

Sources of Funds

Usage

Lines of defense to Finance Economic Growth

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Composition and Election of Foreign Currency Debt

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Debt Management : Focus on Local Currency and Local Market

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Or go Local !!!

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... “Solarize” debt and develop local debt capital markets…

Debt management team has focused, and succeeded, in de-dollarizing its debt profile…

Composition of Public Debt by Currency (1)

(% of total debt)

Liability Management 2014 – 2016 (Millions of dollars) LM 2014 LM 2015 LM 2016

Peru has successfully issued local currency debt in the international capital markets

64 57 44 42 5 30 52 48 31 14 4 10 2004 2009 2014 2016 * Dollars Soles Other

No USD paper
No New money

* Proforma Oct 16 - 2028 soberano bond Source: MEF

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…Peru has significantly increased its Soberanos (PEN) debt stock by focusing

n international format debt issuances (GDNs)…

Soberanos USD Global Bonds Debt Capital Markets Linkers Treasury Bills EUR Global Bonds Local GDN’s

Local Market International Market Development of the local debt market through sovereign bond issues in soles taking advantage of windows of opportunity to maintain liquidity/efficient yield curves

Over the past 10 years Peru has succesfuly increased its Soberanos (PEN) debt stock by 6.7x compared to a growth

f 1.9x for its Global Bond (USD and EUR) debt stock…

Soberanos and Global Bonds

(PEN MM, USD/EUR MM, nominal)

6,513 8,571 9,458 11,440 12,578 8,092 26,008 32,961 44,849 54,563 Dec 05 Dec 10 Dec 13 Dec 15 Oct 16 * Global Soberanos

6.7x 1.9x

* 07-10-2016 ; Include Issue Bond 2028 Source: MEF

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…to diversify the basis of non-resident investors who have holdings in local currency debt…

Source: MEF and Bloomberg * 07-10-2016 ; Included Soberano Bond 2028

Foreign Ownership Holdings – Soberano Bonds

(as of October 2016 )

45% 55% 52%

86%

…by focusing on PEN-denominated international issuances that have further developed the PEN market and significantly increased foreign-ownership of its bonds

*

47%

Tender for Cash Aug 2028s Foreign Local 7.840% Aug 2020s PEN 4,196 MM Issue date; Nov 10 5.700% Aug 2024s PEN 7,128 MM Issue date; Nov 14 6.950% Aug 2031s PEN 4,392 MM Issue date; Mar 15 6.350% Aug 2028s PEN 10,251 MM Issue date; Set 16

41.8% 58.2% 41.8%

Historical Series of Holdings – Soberanos Bonds

(% by investor class)

41.8% 58.2% *

Foreign Local

30.00% 32.00% 34.00% 36.00% 38.00% 40.00% 42.00%

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

41.8%

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Develop and increase repo transactions (i.e. Repo to term)

REPURCHASE AGREEMENT (REPO)

Increase depth and liquidity and include treasury bills

MARKET MAKERS PROGRAM

Manage debt stock to optimize cost and debt profile

LIABILITY MANAGEMENT EXERCISES

Issue benchmarks with large volumes (liquid)

RELEVANT BENCHMARKS

Diversify investor base

INTERNATIONAL SETTLEMENT PLATFORMS

ACTION PLAN TO ENHANCE THE PUBLIC DEBT MARKET …the administration will continue to develop its local market and strengthen its standing as one of the premier issuers in the region…

SECURITIES LENDING/SHORT SELLING

To come :

LIABILITY MANAGEMENT IN LOCAL MARKET

Provide liquidity to the secondary market
Optimize debt profile

SOVEREIGN DEBT FUND

Develop Peruvian Treasury Index / Securities Lending

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Composition and Election of Foreign Currency Debt

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Debt Management : Focus on Local Currency and Local Market

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Or go Local !!!

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Drivers for decision making on foreign currency debt ...

 Tap international markets when there is low external-and-domestic-demand for local currency debt

(not now !!!)

 Look for natural currency hedges (exports revenues vs currency of debt)  Take advantage of windows of opportunity during moments of minimum rate levels  Diversify the investor base  Keep yield curves in USD and EUR updated 

Optimize public debt profile through liability management exercises

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... External Debt Profile...

External Debt by Currency

1) Source: MEF

External Debt by source of funds

 Redirect the foreign currency debt toward capital markets through global bonds in USD and EUR  Expand and diversify investor base reducing the share of multilaterals  Diversify currencies (EUR vs USD)

38% 47% 56% 61% 62% 36% 39% 31% 27% 26% 26% 14% 13% 11% 12%

Dec 05 Dec 10 Dec 13 Dec 15 Aug 16

Bonds

Mult. Loans

Others

68% 83% 90% 87% 82% 11% 10% 6% 4% 5% 11% 4% 2% 7% 12% 9% 3% 2% 1% 1%

Dec 05 Dec 10 Dec 14 Dec 15 Aug 16

USD JPY EUR Others

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…why are we issuing in EUR rather than USD ?

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 Because of low absolute rates/coupons  Access to a new pool of investors  Prepare for OECD access to attract new investors and tighten spreads

…what are the main differences between both markets?

 The USD market is larger, more liquid and has more players with different profiles  The USD market uses traditional tenors while the EUR market may adapt to issuers’ needs  But, the EUR market still prefers shorter tenors EUR investors are more buy and hold

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... financing in foreign currency depends on the demand for local debt and windows of opportunity in USD and EUR

 Provide better liquidity  Diversify currencies looking for natural hedges Lower risk of funding by diversifying markets  Continue to grow the depth and breadth of its high quality investor base  Increase pool of investors

While the Republic has focused on “Solarization”, it remains committed to both its USD and EUR curves, and, over time, will continue to tap these markets to:

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Composition and Election of Foreign Currency Debt

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Debt Management : Focus on Local Currency and Local Market

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Or go Local !!!

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…switch 2017, 2020, 2023 and 2026 Soberanos Bonds and 2019, 2025, 2033 and 2037 Global Bonds to new 2028 Soberano Bond

Soberano 2017 Soberano 2020 Soberano 2023 Soberano 2026 Global 2019 Global 2025 Global 2033 Global 2037

Target Bonds

 Total outstanding of target bonds: USD 12,872 MM  Average success rate: 27%  Total switch amount : USD 3,042 MM (S / 10, 251 MM)

Target Bonds Outstanding

(USD MM equivalent)

Switched / Tendered

(USD MM equivalent)

Soberano 2017 682 522 Soberano 2020 1,842 618 Soberano 2023 1,770 740 Soberano 2026 2,430 368 Global 2019 692 342 Global 2025 2,009 307 Global 2033 2,245 92 Global 2037 1,202 52 TOTAL 12,872 3,042 2028 Soberano Bond Outstanding (USD MM equivalent) 3,042.0 Maturity August 2028 Cupon 6.350% Price 99.851% Yield 6.375%

2028 SOBERANO BOND

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... optimize public debt profile by retiring short-term bonds, both in PEN and USD, with high coupons and/or inefficient prices... New Profile of Public Debt

New 2028 soberano bond

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... while generating interest savings, increased “solarization” and average life of public debt...

Achieved goals:

 Generated interest savings for an amount of USD 36.0 MM (S / 121.3 MM)  Increased “solarization” from 45.8% to 47.5%.  Increased average life from 11.7 to 12.2 years  Generated positive net present value (NPV) of USD 24.5 MM (S / 82.7 MM)  Reduced “Dollarization” from 54.8% to 53.1%

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Click to edit Master title style

Carlos Blanco Cáceres

General Director of Indebtedness and Public Treasury Washington, October 19th 2016

Choosing between USD or EUR -denominated debt in the international markets…or go local !!!

Contents

1

3

2

4

…The administration expects indebtedness levels to remain low and below its regional peers as the fiscal deficit continues to consolidate…

... the sources of financing of the Republic come from asset management and internal and external liabilities ...

Contents

1

3

2

4

... “Solarize” debt and develop local debt capital markets…

…Peru has significantly increased its Soberanos (PEN) debt stock by focusing

…to diversify the basis of non-resident investors who have holdings in local currency debt…

ACTION PLAN TO ENHANCE THE PUBLIC DEBT MARKET …the administration will continue to develop its local market and strengthen its standing as one of the premier issuers in the region…

To come :

Contents

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3

2

4

Drivers for decision making on foreign currency debt ...

 Tap international markets when there is low external-and-domestic-demand for local currency debt

 Look for natural currency hedges (exports revenues vs currency of debt)  Take advantage of windows of opportunity during moments of minimum rate levels  Diversify the investor base  Keep yield curves in USD and EUR updated 

... External Debt Profile...

…why are we issuing in EUR rather than USD ?

 Because of low absolute rates/coupons  Access to a new pool of investors  Prepare for OECD access to attract new investors and tighten spreads

…what are the main differences between both markets?

 The USD market is larger, more liquid and has more players with different profiles  The USD market uses traditional tenors while the EUR market may adapt to issuers’ needs  But, the EUR market still prefers shorter tenors EUR investors are more buy and hold

... financing in foreign currency depends on the demand for local debt and windows of opportunity in USD and EUR

 Provide better liquidity  Diversify currencies looking for natural hedges Lower risk of funding by diversifying markets  Continue to grow the depth and breadth of its high quality investor base  Increase pool of investors

While the Republic has focused on “Solarization”, it remains committed to both its USD and EUR curves, and, over time, will continue to tap these markets to:

Contents

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3

2

4

…switch 2017, 2020, 2023 and 2026 Soberanos Bonds and 2019, 2025, 2033 and 2037 Global Bonds to new 2028 Soberano Bond

... optimize public debt profile by retiring short-term bonds, both in PEN and USD, with high coupons and/or inefficient prices... New Profile of Public Debt

... while generating interest savings, increased “solarization” and average life of public debt...

Click to edit Master title style

Carlos Blanco Cáceres

General Director of Indebtedness and Public Treasury Washington, October 19th 2016

Choosing between USD or EUR -denominated debt in the international markets…or go local !!!