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Central Reserve Bank (BCR) increased its projection for foreign direct investment in Peru this year from $8.169 billion to $8.512 billion.

According to the Inflation Report in June 2011 the Central Bank also raised from 8.5 billion to 8.950 billion dollars the expected foreign direct investment in the Peruvian market in 2012, while 2013 is estimated to reach 9.512 billion dollars. Also stated in the first quarter of 2011, the financial account of long-term private sector amounted to 2.884 billion dollars. As for liabilities, loan disbursements stood for 1.052 billion dollars, the flow of foreign direct investment 1.712 billion, and the acquisition of securities issued in the domestic market by non-residents (48 million). In terms of assets, it showed the reduction of foreign securities by institutional investors (179 million).

The issuer has projected that private financial capital flows would record positive 8.769 billion and 8.103 billion in 2011 and 2012, respectively. The BCR added that for 2011 and 2012, financial account flows from the private sector are less than in 2010. This scenario provides a lower acquisition of securities issued in the domestic market by non-residents and lower long-term outlays to finance investment projects in a context that part o these projects would be funded by institutional investors.

In addition, the Central Bank is expected to record a long-term external financing, net foreign direct investment for more disbursements of $11.8 billion and $11.9 billion in 2011 and 2012, respectively, higher than the expected amounts in the March 2011 Inflation Report. On the other hand, the Central Bank said that the constant challenge of the Peruvian capital market is the entry of new issuers, so that it meets the growing demand for financial assets of institutional investors. It said local companies should improve their organizational structure and implement good corporate governance practices to access the capital market.

Thus, the quality of financial and accounting information needs to be improved and professionalize their management; develop strategic plans, and have the right people to execute them. According to the Financial Stability Report prepared by the BCR, the preparation and above improvements to be made by a company before structuring an emission will generate a series of economic benefits that outweigh the costs. For example, audited financial statements- a requisite for issuing-banks, leads to the reclassification and reduces by about 2-3 percentage points the financial cost of borrowing.

Thus, the cost of auditing the financial statements, estimated between $20,000 and $25,000 for a medium-sized company is offset by the reduction in funding costs and the higher value is awarded to the company. In that sense, the Central Bank said it is more desirable the distribution of the benefits of entering the capital market as financial cost reduction, access to long-term financing, diversification of funding sources, and greater bargaining power compared to other funders, particularly the banking system.

It also considered advisable that companies, beyond a certain size and not having the securities registered in the Public Market, disclose their financial information through the National Supervisory Commission for Companies and Securities (Conasev). “Thus, these companies would become known to the market so that intermediaries can plant debt structures and facilitate the search for funding according to their needs and projects,” it added. For the BCR, the main problem faced by new issuers is the complexity and multiplicity of processes to be carried out during an emission.

It said that for companies it is very expensive and cumbersome to understand and carry out the procedures required by regulators. It explained that one factor that discourages companies from entering the capital market is the overhead associated with labor costs spent to comply with the administrative processes required for the emission (cost of legal counsel and/or labor spent on staff and management of the company).

Therefore, it said it is necessary that Conasev, the Lima Stock Exchange (LSE), and Cavali create a single procedure, which is as simple and easy to understand. It also mentioned training for new issuers of all the steps to be taken and through Internet portals detail the most common mistakes committed by new issuers.