The Inter-American Development Bank (IADB) has approved its first private sector bond guarantee programme in Peru up to US$10mn guarantee of a US$50mn bond issue by Gra ía &Montero SAA, the leading engineering services and contracting company in the country.
The operation is the first private sector bond guarantee project by any multilateral financial institution in Peru.
The Netherlands Development Finance Company (FMO) will co-guarantee up to another US$10mn of the bond issue. The two guarantees for a total of US$20mn of the bond, together with a proposed securitisation mechanism, will enable Gra ía &Montero to issue a AA structured bond, an upgrade from its BBB investment rating at the local level. That in turn will attract quality investors to one of Peru’s most important firms for infrastructure development and will set a precedent for raising private resources on the local capital market for corporate investment and expansion needs.
The operation will also provide higher additional investment options for the Peruvian private pension system as well as allowing access of BBB local issuers to long-term capital market funding.
Gra ía &Montero is a major player in the infrastructure development of the Peruvian economy and is involved in key projects related to transportation, mining, gas, petroleum and information technology. The resources from the bond sale, among other projects, will enable G&M to participate in important infrastructure projects in Peru.
Other benefits of the bond sale will be the creation of a new benchmark for local investors, enhancement of local skills in securitisation technologies, and leveraging of a partial credit guarantee to attract new long-term capital resources through an investment rating upgrade.
“With only a partial guarantee of 20% of the transaction risk, we were able to mobilise additional risk sharing from co-guarantors as well as for 100% of private funding from institutional investors,” comments Ellis Juan, head of capital markets for the IADB’s private sector department.