Peru to borrow US$4 billion in bonds, plans to raise taxes on mining company profits

RIO DE JANEIRO, BRAZIL – Bonds will be issued in one or more placements, which may include the reopening of existing bonds or the issuance of new benchmarks.

This debt issuance by the government of president Pedro Castillo will be made under the Public Sector Indebtedness Law for Fiscal Year 2021. The maturities, the amounts and the currency in which this debt will be issued will be soon determined by the General Directorate of the Public Treasury.

However, bond payments will be made semiannually on a 30/360 day basis or on the frequency and basis determined by the market in which each placement is made.

BNP Paribas, BofA, J.P. Morgan and Morgan Stanley will act as financial advisors and underwriters of the debt.

Fitch recently lowered its rating for Peruvian debt in foreign currency from BBB+ with negative outlook to BBB with stable outlook, while Standard & Poor’s (S&P) maintained it at BBB+, as in most of the risk rating agencies, and at A- with negative outlook for domestic currency.

Fitch’s adjustment was due to a gradual deterioration of fiscal strength, exacerbated by the pandemic, added to a lower economic growth outlook and the challenges that the public administration may face due to the social demands generated by the pandemic.

Despite the change, the Ministry of Economy emphasized that Peru remains the second best credit rating in Latin America.

PERU EXPECTS TO INCREASE TAX REVENUES

Castillo’s government wants to raise its tax revenues by some 12 billion soles a year (US$3.03 billion) or 1.5% of GDP with a tax reform bill that considers raising income tax on higher income earners and the key mining sector, the Economy Minister said Thursday.

Francke said the reform seeks to raise the needed resources to improve education and health, at a time when tax collection has plummeted due to the economic crisis triggered by the coronavirus pandemic.

The government of leftist president Pedro Castillo on Wednesday asked Congress for full powers for 120 days to pass legislation on tax and financial measures, in a country with a high rate of non-compliance with taxes and informality in its economy.

Most of the new revenues are expected to come from increased mining taxes, although Francke told a press conference that studies to define tax rates for the sector have not yet been completed.

Peru, the world’s second largest copper producer, is working with the International Monetary Fund (IMF) to prepare a proposal that the government hopes will not affect mining competitiveness.

“Our studies indicate that there is room to raise (mining) taxes for companies with large operating profits,” Francke said. “No new taxes are going to be created” for the sector, responsible for 60% of Peru’s exports.

“The IMF mission ends tomorrow (Friday), we still do not have a specific definition on rates,” he said.

However, the Minister said that given the high international prices of copper and other minerals “a mining company with perhaps 75%, 80%, 90% of operating margin can be taxed at a higher rate.”