bond market development peruvian case bond market development peruvian case carlos a. castro manager...
TRANSCRIPT
BOND MARKET DEVELOPMENTBOND MARKET DEVELOPMENT
PERUVIAN CASEPERUVIAN CASE
BOND MARKET DEVELOPMENTBOND MARKET DEVELOPMENT
PERUVIAN CASEPERUVIAN CASE
Carlos A. CastroManager
Intermediaries and Funds DivisionCONASEV
Virginia - June 19-21, 2002
FINANCE FORUM 2002: ALIGNING FINANCIAL FINANCE FORUM 2002: ALIGNING FINANCIAL SECTOR KNOWLEDGE AND OPERATIONSSECTOR KNOWLEDGE AND OPERATIONS
FINANCE FORUM 2002: ALIGNING FINANCIAL FINANCE FORUM 2002: ALIGNING FINANCIAL SECTOR KNOWLEDGE AND OPERATIONSSECTOR KNOWLEDGE AND OPERATIONS
2
The Peruvian Public Debt sums US$ 23,1 billion as of 03/31/2002.
US$ 19,1 billion (83%) of Public External Debt and US$ 3,99 billion (17%) of Public Domestic Debt.
PERUVIAN PUBLIC DEBTPERUVIAN PUBLIC DEBTAs of 03/31/2002As of 03/31/2002
PERUVIAN PUBLIC DEBTPERUVIAN PUBLIC DEBTAs of 03/31/2002As of 03/31/2002
3
MEDIUM AND LONG TERM PUBLIC MEDIUM AND LONG TERM PUBLIC EXTERNAL DEBTEXTERNAL DEBT
OUTSTANDING DEBT BY FINANCIAL SOURCESOUTSTANDING DEBT BY FINANCIAL SOURCES(Millions of US$)(Millions of US$)
MEDIUM AND LONG TERM PUBLIC MEDIUM AND LONG TERM PUBLIC EXTERNAL DEBTEXTERNAL DEBT
OUTSTANDING DEBT BY FINANCIAL SOURCESOUTSTANDING DEBT BY FINANCIAL SOURCES(Millions of US$)(Millions of US$)
Paris Club and Multilateral Organizations concentrate 74% of the outstanding debt.
4
PUBLIC EXTERNAL DEBT RATIOSPUBLIC EXTERNAL DEBT RATIOSPUBLIC EXTERNAL DEBT RATIOSPUBLIC EXTERNAL DEBT RATIOS
1998 1999 2000 2001GDP (millions of US$) 57,080 52,028 54,060 54,000 EXPORTS (millions of US$) 5,757 6,114 7,016 7,132 PED/GDP (%) 34.3 37.5 35.5 35.1 Total Serv./Exports (%) 26.4 28.3 31.0 27.5 Interests/Exports (%) 14.6 17.3 15.8 15.1 Interests/GDP (%) 1.5 2.0 2.1 2.5
Source: BCRP-DGCP
5
DOMESTIC DEBT OF THE CENTRAL GOVERNMENT DOMESTIC DEBT OF THE CENTRAL GOVERNMENT
OUTSTANDING DEBT BY TYPE AND CREDITORSOUTSTANDING DEBT BY TYPE AND CREDITORS(Thousands of US$)(Thousands of US$)
DOMESTIC DEBT OF THE CENTRAL GOVERNMENT DOMESTIC DEBT OF THE CENTRAL GOVERNMENT
OUTSTANDING DEBT BY TYPE AND CREDITORSOUTSTANDING DEBT BY TYPE AND CREDITORS(Thousands of US$)(Thousands of US$)
The Domestic Public Debt has to main creditors: “Bonos de Reconocimiento” of people who affiliated to the private pension system and Banco de la Nación (mainly credits in dollars and Bonds).
6
The portfolio of Public Debt is mainly represented in foreign currency. Only 8,8% is in Nuevos Soles (Peruvian currency).
Debt in US Dollars is the most representative (54,2%).
Debts in Single Currency Pool (SCP) and Unit Account Value (UAV) represent together 10,2%.
Only 40% of the Public Debt is denominated in fixed rate.
PUBLIC DEBT BY CURRENCIES AND PUBLIC DEBT BY CURRENCIES AND INTEREST RATEINTEREST RATE
PUBLIC DEBT BY CURRENCIES AND PUBLIC DEBT BY CURRENCIES AND INTEREST RATEINTEREST RATE
7
REGULATORY FRAMEWORK ABOUT GOVERNMENT BONDS (1/2)
REGULATORY FRAMEWORK ABOUT GOVERNMENT BONDS (1/2)
Public offerings of securities are regulated under Securities Market Act of 1996.
They generate to the issuer obligations of disclosure to the market participants.
The compliance of all these obligations are overseen by CONASEV, the governmental agency in charge of regulating the Securities Market.
8
The issue and trading of securities by the Central Government, Regional Governments, Local Governments and the Central Reserve Bank are subject to the provisions contained in the respective authorizing legal rule (article 49 of the Securities Market Act).
REGULATORY FRAMEWORK ABOUT GOVERNMENT BONDS (2/2)
REGULATORY FRAMEWORK ABOUT GOVERNMENT BONDS (2/2)
9
Peruvian Government issued US$ 300 million in 1998, US$ 870 million in 1999 and US$ 700 million in 2000.
It was given as a part of the governmental programs oriented to the financial assistance to Farming Sector, Bankruptcy Programs and Commercial Banks.
None of these issues were placed by public offerings and the securities are not listed in any Stock Exchange or another kind of organized securities market. They do not have any secondary market.
PERUVIAN GOVERNMENT BONDS ISSUED PERUVIAN GOVERNMENT BONDS ISSUED 1998-20001998-2000
PERUVIAN GOVERNMENT BONDS ISSUED PERUVIAN GOVERNMENT BONDS ISSUED 1998-20001998-2000
10
Recently, the first step was given to the formation of a market for Sovereign Bonds in Peru.
In the first quarter of 2001 Peruvian Government issued S/. 500 million (US$ 142 million) in Sovereign Bonds with the following profile: Local currency (S/.).
Low face value (S/. 1 000 equivalent to US$ 285).
Traded in Lima Stock Exchange (LSE).
During the second half of year 2001 Peruvian Government issued S/. 700 million (US$ 200 million) in Sovereign Bonds.
SOVEREIGN BONDS ISSUE PROGRAM 2001SOVEREIGN BONDS ISSUE PROGRAM 2001SOVEREIGN BONDS ISSUE PROGRAM 2001SOVEREIGN BONDS ISSUE PROGRAM 2001
11
From 01/18/2002 to now, Peruvian Government has issued S/. 634 million (US$ 183 million) in Sovereign Bonds.
Ten auctions have been celebrated as on 06/18/2002. Nine of them were oversubscribed (2.6 times in total average).
The sum of next issues of Sovereign Bonds during this year will be S/. 1,2 billion (US$ 336 million).
The IPO of these Bonds are through Dutch auctions, structured directly by the Ministry of Finance.
SOVEREIGN BONDS ISSUE PROGRAM 2002SOVEREIGN BONDS ISSUE PROGRAM 2002SOVEREIGN BONDS ISSUE PROGRAM 2002SOVEREIGN BONDS ISSUE PROGRAM 2002
12
SOVEREIGN BONDS ISSUE PROGRAM 2001SOVEREIGN BONDS ISSUE PROGRAM 2001S/. 500 million (US$ 142 million)S/. 500 million (US$ 142 million)
Pension Funds bought 71,2% of the total amount issued. Banks and Financial Institutions bought 18,9%.
13
SECOND SOVEREIGN BONDS ISSUE PROGRAM 2001SECOND SOVEREIGN BONDS ISSUE PROGRAM 2001S/. 700 million (US$ 200 million)S/. 700 million (US$ 200 million)
Pension Funds bought 41,9% of the total amount issued and Banks and Financial Institutions bought 41,6%.
14
SOVEREIGN BONDS ISSUE PROGRAM 2002SOVEREIGN BONDS ISSUE PROGRAM 2002S/. 634 million (US$ 183 million)S/. 634 million (US$ 183 million)
Banks and Financial Institutions bought 63% of the total amount issued and Pension Funds bought 13%.
The sum of next issues of Sovereign Bonds during this year is S/. 1,166 million (US$ 338 million).
15
PERUVIAN STOCK MARKETStatistical Information
PERUVIAN STOCK MARKETStatistical Information
Since 1997, Peruvian Stock Market has showed an important reduction in its market capitalization and traded value in LSE.
Market Capitalization
0
5,000
10,000
15,000
20,000
1995 1996 1997 1998 1999 2000 2001
0
10
20
30
40
50
60
70
Market Capitalization (US$ Millions) % 10 securities > capitalization
Traded Value
0
1,000
2,000
3,000
4,000
5,000
6,000
1995 1996 1997 1998 1999 2000 2001
Equities Debt Instruments Report Operations
Primary Placement Double Spot and Forw ard MIENM
2001 Traded Value was US$ 3.4 billion, that represents 28% of
1997 negotiation (US$ 12 billion).
2001 Market Capitalization was US$ 10.9 billion, 62% of 1997
(US$ 17.4 billion).
16
DEVELOPING SOVEREIGN BOND SECONDARY DEVELOPING SOVEREIGN BOND SECONDARY MARKET IN LIMA STOCK EXCHANGE MARKET IN LIMA STOCK EXCHANGE
(Millions of US$)(Millions of US$)
DEVELOPING SOVEREIGN BOND SECONDARY DEVELOPING SOVEREIGN BOND SECONDARY MARKET IN LIMA STOCK EXCHANGE MARKET IN LIMA STOCK EXCHANGE
(Millions of US$)(Millions of US$)
The Sovereign Bonds are starting with low participation in transactions with debt instruments in the secondary market in the LSE.
0
100
200
300
400
500
600
700
Mar
-01
Apr-0
1
May
-01
Jun-
01
Jul-0
1
Aug-0
1
Sep-0
1
Oct
-01
Nov-0
1
Dec-0
1
Jan-
02
Feb-0
2
Mar
-02
Apr-0
2
May
-02
Jun-
02
Government Bonds Debt Market
17
TOTAL TRADED VOLUMEN DURING YEAR 2001 IN TOTAL TRADED VOLUMEN DURING YEAR 2001 IN THE LIMA STOCK EXCHANGETHE LIMA STOCK EXCHANGE
By InstrumentBy Instrument
TOTAL TRADED VOLUMEN DURING YEAR 2001 IN TOTAL TRADED VOLUMEN DURING YEAR 2001 IN THE LIMA STOCK EXCHANGETHE LIMA STOCK EXCHANGE
By InstrumentBy Instrument
Sovereign Bonds only represented 3% of the total amount traded in the secondary market in the Lima Stock Exchange during year 2001.
Equities38%
Sovereing Bonds
3%
Rest of Debt Instruments
59%
18
From January 01 to June 17 transactions with Sovereign Bonds increased enormously and represent 16% of total amount traded in secondary market in LSE.
TOTAL TRADED VOLUMEN IN THE LIMA STOCK TOTAL TRADED VOLUMEN IN THE LIMA STOCK EXCHANGE BY INSTRUMENTEXCHANGE BY INSTRUMENT
(As of 06/01/2002)(As of 06/01/2002)
TOTAL TRADED VOLUMEN IN THE LIMA STOCK TOTAL TRADED VOLUMEN IN THE LIMA STOCK EXCHANGE BY INSTRUMENTEXCHANGE BY INSTRUMENT
(As of 06/01/2002)(As of 06/01/2002)
Equities33%
Sovereign Bonds16%
Rest of Debt Instruments
51%
19
Mutual Funds: Investments in Sovereign Bonds have increased enormously and represent 11% of portfolio.
SOVEREIGN BONDS IN MUTUAL FUNDSSOVEREIGN BONDS IN MUTUAL FUNDS PORTFOLIOSPORTFOLIOS
SOVEREIGN BONDS IN MUTUAL FUNDSSOVEREIGN BONDS IN MUTUAL FUNDS PORTFOLIOSPORTFOLIOS
Portfolio Distribution
0%
20%
40%
60%
80%
100%
Ene
-01
Mar
-01
May
-01
Jul-0
1
Sep
-01
Nov
-01
Ene
-02
Mar
-02
Sovereign Bonds Other Investments
Sovereign Bond Investments (MM US$)
0
20
40
60
80
100
120
140
160
180
Ene
-01
Feb
-01
Mar
-01
Abr
-01
May
-01
Jun-
01
Jul-0
1
Ago
-01
Sep
-01
Oct
-01
Nov
-01
Dic
-01
Ene
-02
Feb
-02
Mar
-02
Abr
-02
20
Pension Funds: Investments in Sovereign Bonds have increased enormously and represent 12% of portfolio.
SOVEREIGN BONDS IN PENSION FUNDSSOVEREIGN BONDS IN PENSION FUNDS PORTFOLIOSPORTFOLIOS
SOVEREIGN BONDS IN PENSION FUNDSSOVEREIGN BONDS IN PENSION FUNDS PORTFOLIOSPORTFOLIOS
Portfolio Distribution
0%10%20%30%40%50%60%70%80%90%
100%
Ene
-01
Mar
-01
May
-01
Jul-0
1
Sep
-01
Nov
-01
Ene
-02
Mar
-02
Government Bond Other Investments
Sovereign Bond Investments (MM US$)
0
100
200
300
400
500
600
Ene
-01
Feb
-01
Mar
-01
Abr
-01
May
-01
Jun-
01
Jul-0
1
Ago
-01
Sep
-01
Oct
-01
Nov
-01
Dic
-01
Ene
-02
Feb
-02
Mar
-02
Abr
-02
21
Benefits for the Government: Reduces exchange rate risks and effects of global crises, etc.
Benefits for the Stock Market:
Establishment of a benchmark yield curve.- Because they were Issued in local currency and with different maturities. Useful for for private issues in local currency.
Appearance of new instruments and derivates.
Increase in depth of secondary market.- The low face value of each Bond make easy the participation of more investors, specially individuals.
More Transparency.- The possibility of negotiation in the LSE has established a new relationship between Government (as issuer) and the financial sector (as investor).
IMPORTANCE OF SOVEREIGN BONDS ISSUESIMPORTANCE OF SOVEREIGN BONDS ISSUESIMPORTANCE OF SOVEREIGN BONDS ISSUESIMPORTANCE OF SOVEREIGN BONDS ISSUES
22
It is necessary to enhance the market activity.
In that sense, it would be important the development of the money market.
MEF and CONASEV must check the existing trading platforms to assure that they offer enough transparency to the market.
CHALLENGESMarket Activity
CHALLENGESMarket Activity
23
In Peru the role of Financial Regulation and Supervision is conducted by two agencies: the Superintendence for Banks, Pension Funds and Insurance Companies (SBS) and the Securities and Exchange Commission (CONASEV), responsible for mutual funds and brokerage houses.
SBS and CONASEV have established four different valuation systems for each type of institutions (banks, pension funds, mutual funds and insurance companies), although they invest in the same instruments.
So, it is important to unify the methodology to value portfolios
CHALLENGESUnification of Mark to Market Valuation
CHALLENGESUnification of Mark to Market Valuation
24
Financial market in Peru is very concentrated.
Banks own most Broker/Dealers and Mutual Funds Managers.
There is no clear separation between different activities within the same financial group.
It is necessary a real separation of activities between banking and fund management.
CHALLENGESChinese Walls
CHALLENGESChinese Walls
25
In Peru there are only a few Institutional Investors (QIBs), mainly Pension Funds, Banks, Insurance Companies and Mutual Funds, and they are the regular buyers of the new private and government issues.
Several governmental managed funds, such as COFIDE, ESSALUD, MIVIVIENDA and ONP, have not had a significant participation as investors in the stock market.
In order to increase the competition among buyers and investors, it is important that these governmental institutions participate more actively in the stock market. With the proper transparency, this will contribute in the development of a secondary market.
CHALLENGESGovernment Institutions as investors
CHALLENGESGovernment Institutions as investors
26
The Ministry of Finance (MEF) should create a Division responsible to lead a formal program oriented to support the development of Sovereign Bond market and to coordinate the participation of all the key institutions involved (MEF, BCRP, CONASEV and SBS).
The staff of this Division must follow a government strategy and should be familiarized with market behavior.
CHALLENGESLeading MEF Division
CHALLENGESLeading MEF Division
27
The efforts performed by the WB/IMF Technical Assistance to develop a market for Sovereign Bonds have been extremely valuable for countries such as Peru.
Lessons received from events like the “1st Workshop on Developing Government Bond Markets in Latin America” (June 2001 - Rio) and the “Workshop Government Bond Market Development in Peru” (March 2002 – Lima) were transmitted to the market participants through specialized printed journals.
WB/IMF TECHNICAL ASSISTANCE AND WORKSHOPS
Developing a Market for Government Securities
WB/IMF TECHNICAL ASSISTANCE AND WORKSHOPS
Developing a Market for Government Securities
28
In Peru we have too much challenges to undertake during the next years in order to develop a healthy market for Government Securities.
I am sure that WB/IMF technical assistance and Workshops are being essential in that process and the Handbook “Developing Government Bond Markets” is being a useful and valuable reference to achieve this task.
WB/IMF TECHNICAL ASSISTANCE AND WORKSHOPS
Developing a Market for Government Securities
WB/IMF TECHNICAL ASSISTANCE AND WORKSHOPS
Developing a Market for Government Securities
BOND MARKET DEVELOPMENTBOND MARKET DEVELOPMENT
PERUVIAN CASEPERUVIAN CASE
BOND MARKET DEVELOPMENTBOND MARKET DEVELOPMENT
PERUVIAN CASEPERUVIAN CASE
Carlos A. CastroManager
Intermediaries and Funds DivisionCONASEV
Virginia - June 19-21, 2002
FINANCE FORUM 2002: ALIGNING FINANCIAL FINANCE FORUM 2002: ALIGNING FINANCIAL SECTOR KNOWLEDGE AND OPERATIONSSECTOR KNOWLEDGE AND OPERATIONS
FINANCE FORUM 2002: ALIGNING FINANCIAL FINANCE FORUM 2002: ALIGNING FINANCIAL SECTOR KNOWLEDGE AND OPERATIONSSECTOR KNOWLEDGE AND OPERATIONS