Banco Internacional del Perú (Interbank) raised $350m of 10 year non-call five tier two paper on Monday in a trade that bankers on and off the deal said was being looked at in comparison to larger peer Banco de Crédito del Perú’s September new issue — rather than its own bonds.
Interbank priced its Baa3/BB+ rated 6.397% April 2035s at par to yield 6.4%, having earlier set initial price thoughts of high 6% area and guidance at 6.45% area. Books peaked at $1.25bn before falling to $700m after the tightening.
A banker on the deal said the steep drop was because the “pricing outcome was quite punchy”. But this was not immediately obvious.
Indeed, one EM syndicate banker in New York and not on the mandate said that, at first look, he had been puzzled that Interbank hadn’t been able to tighten further. This was based on the fact that Interbank’s $300m 7.625% January 2034s, issued a year ago and callable in 2029, are trading at a yield-to-call of 5.87%.
Yet by any other metrics, the pricing looked fairly tight.
“If you look at the 2034s, then it just looks like they paid a huge amount for the one year extension,” said a LatAm DCM banker not on the deal. “But that’s not the best bond because it’s trading stupidly tight for what must be technical reasons.
“BCP is by far the best comp as what they issued in September is now effectively what Interbank issued on Monday. And versus that and other metrics it looks a more than reasonable outcome.”
When Interbank was announced, a banker on the deal said he spotted BCP’s $600m of March 2035s bid at 6.37%, while the DCM banker off the deal saw them at 6.27%. In any case, Interbank’s smaller size than BCP — the largest bank in Peru — should be worth around 10bp of extra yield, said the banker off the deal.
The banker on the deal said that Interbank’s 2034s had been trading tight for technical reasons.
“It’s a small bond, not that liquid, and the local accounts keep chipping away at it,” he said. “Often the market moves and those bonds don’t react.“
An additional factor could be the high 365bp reset spread on the bond issued a year ago, making it even more likely to be called. Interbank’s Monday deal came at 207bp over Treasuries, while the reset spread on BCP’s 2034s is just 224bp.
Moreover, the banker on the deal highlighted that Interbank’s new issue had come just 110bp over the Peruvian sovereign — down from 250bp when it issued a year ago.
And the DCM banker off the deal noted that, using BCP’s senior curve and adding 10bp to get a theoretical senior curve for Interbank, the new deal only paid a hypothetical 75bp spread to senior. This is in line with the usual tier two to senior pick-up in Peru.
Goldman Sachs, JP Morgan and Santander were bookrunners on the trade.
Kallpa powers through guidance
Also from Peru on Monday, power company Kallpa Generación set initial price thoughts of 200bp over US Treasuries for a proposed $500m will-not-grow seven year deal.
Leads Deutsche Bank, JP Morgan and Santander attracted over $3bn of orders, allowing them to offer guidance of 170bp plus or minus 5bp.
But with the order book remaining above $2.5bn, according to bankers, there was sufficient demand to push beyond that range and launch a $500m deal at 163bp.
Kallpa priced its 5.875% coupon January 2032s at 98.985 to yield 6.055%. On last week’s roadshow, the company held 28 meetings with 89 investors over four days, it said in a statement.
More than half the proceeds from the deal will be used to finance a tender offer for the company’s $350m of 4.875% 2026s, which closed on Monday when $273.638m of bondholders agreed to sell their paper at 100.15 cents on the dollar. Remaining proceeds will be used to finance part of the company’s Sunny solar project, a 309MW plant in Arequipa, Peru.