Click to edit Master title style

Carlos Blanco CáceresGeneral Director of Indebtedness and Public Treasury

Washington, October 19th 2016

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

2

Contents

Evolution of Public Debt and Finance Strategy1

Composition and Election of Foreign Currency Debt3

Debt Management : Focus on Local Currency and Local Market2

Or go Local !!!4

3

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

.-0

2

mar

.-0

3

sep

.-0

3

mar

.-0

4

sep

.-0

4

mar

.-0

5

sep

.-0

5

mar

.-0

6

sep

.-0

6

mar

.-0

7

sep

.-0

7

mar

.-0

8

sep

.-0

8

mar

.-0

9

sep

.-0

9

mar

.-1

0

sep

.-1

0

mar

.-1

1

sep

.-1

1

mar

.-1

2

sep

.-1

2

mar

.-1

3

sep

.-1

3

mar

.-1

4

sep

.-1

4

mar

.-1

5

sep

.-1

5

mar

.-1

6

sep

.-1

6

* 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

1

2

1

4

... 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 LoansSecondary Liquidity Reserve

Sources of Funds

Usage

Lines of defense to Finance Economic Growth

1

2

1

5

Contents

Evolution of Public Debt and Finance Strategy1

Composition and Election of Foreign Currency Debt3

Debt Management : Focus on Local Currency and Local Market2

Or go Local !!!4

6

... “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

3052

48

31

14

410

2004 2009 2014 2016 *

Dollars Soles Other

• No USD paper

• No New money

* Proforma Oct 16 - 2028 soberano bondSource: MEF

1

22

7

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

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

Soberanos and Global Bonds

(PEN MM, USD/EUR MM, nominal)

6,513

8,5719,458

11,44012,578

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 2028Source: MEF

1

22

8

…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%

1

22

9

- Develop and increase repo transactions (i.e. Repo to term)REPURCHASE AGREEMENT (REPO)

- Increase depth and liquidity and include treasury billsMARKET MAKERS PROGRAM

- Manage debt stock to optimize cost and debt profileLIABILITY MANAGEMENT EXERCISES

- Issue benchmarks with large volumes (liquid)RELEVANT BENCHMARKS

- Diversify investor baseINTERNATIONAL 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

1

22

10

Contents

Evolution of Public Debt and Finance Strategy1

Composition and Election of Foreign Currency Debt3

Debt Management : Focus on Local Currency and Local Market2

Or go Local !!!4

11

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

1

2

3

12

... 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

1

2

3

13

…why are we issuing in EUR rather than USD ?

1

2

3

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

14

... 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:

1

2

3

15

Contents

Evolution of Public Debt and Finance Strategy1

Composition and Election of Foreign Currency Debt3

Debt Management : Focus on Local Currency and Local Market2

Or go Local !!!4

16

…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 BondsOutstanding

(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

1

2

4

17

... 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

1

2

4

18

... 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%

1

2

4

Click to edit Master title style

Carlos Blanco CáceresGeneral Director of Indebtedness and Public Treasury

Washington, October 19th 2016

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