Petrobras, the Brazilian government-owned oil company,
unexpectedly priced an investor-friendly $1.5bn 10-year global
bond this week to boost its ambitious five year investment
The BBB/BBB/Baa1deal was priced
on Wednesday with a 7.875% coupon at 98.282 to yield 8.125%, or
518bp over US Treasuries. Lead managers HSBC, JP Morgan and
Santander took advantage of the $5.4bn of orders and the
issuers conservative decision not to upsize the deal to
price the 2019 benchmark with a fair but tight yield.
On Wednesday morning, the leads
sent out soft pricing whispers to investors in the low-to-mid
8s. By 11pm, the deal had sucked in around $4bn of interest and
official pricing guidance in the 8.250% area was released. The
almost four times oversubscription for the senior unsecured
notes helped to cap the yield at 8.125%.
Petrobras has a well-known and
liquid borrowing profile and its 2018s were referenced for
pricing rather than Brazilian government debt. But its 2018s
have tightened on the back of improved Latin credit conditions
and positive market response to its investment programme.
Bankers say the new issue
concession represents around 35bp-40bp relative to the 2018s
that had, nevertheless, widened on news of new debt supply.
Bankers away from the transaction say the premium was around
60bp compared to the previous days trading.
Last week, Pemex,
Petrobras fellow quasi-sovereign counterpart, issued $2bn
in 2019 notes to yield 8.25% with a 15bp to 20bp concession.
However, the oil companys existing 2018s were trading at
historically wide levels to the sovereign at around 210bp,
helping to place a ceiling on the new issue concession. By
contrast, Petrobras secured around 145bp pick-up to the
Brazilian sovereign for the SEC-registered global 2019s.
The decision to issue in the
international capital markets has come as an abrupt about-turn
to many in the market after its chief executive, José
Sergio Gabrielli, announced last week that borrowing costs were
prohibitively high. "Petrobrass risk curve needs to be
more realistic than it is today. We need to observe the market
conditions and go to the market when they are more favourable,"
But over the past week,
Petrobras embarked on a roadshow in London, New York, Boston,
San Francisco and Los Angeles.
It has secured $12.5bn from
BNDES and intends to borrow around $5bn in the international
loan market. After this weeks $1.5bn issue, it plans to
raise a further $3.5bn to $4.5 in the next two years in the
local or international bond market. The Brazilian government
led by president Luiz Inacio Lula da Silva owns over 50% of the
company's common shares.
A banker on this weeks
transaction said: "The company realised that now is as good a
time as ever to issue. Even if spreads come down, there could
be a sell-off in US Treasuries that will raise the all-in yield
costs of new deals. The borrower realised we live in a
high-yield world now."
Petrobras reopened the Latin
corporate market with a $750m 2018 issue last January yielding
5.86%, 205bp over US Treasuries. But the following month, it
postponed its $500m re-opening of its global 2016s after
failing to attract enough investors for its 5bp concession
offer at 210bp over US Treasuries.
"The borrow has a reputation of
trying to squeeze every basis point but its demands were
reasonable and it wanted the transaction to be well liked by
investors because it will probably issue again in September,"
said one of the leads. While Pemex last week aimed for a large
benchmark, Petrobras opted for tighter pricing.
Rival bankers were
complimentary. "Everything about the deal made sense. It was a
completely fair transaction," said one debt banker in New
In the end, 55% of the notes
were sold in the US, 35% Europe, 10% Latin America/Asia and 10%
other, including Middle Eastern orders. By investor type, 42%
were fund mangers, 14% hedge funds, 12% banks, 7% insurance
companies and 3% pension funds. Around 330 investors
participated compared with 230 participating accounts for
Pemex. As a publicly listed company, Petrobras attracts
equity-focused buyers, helping to broaden its pool of investors
and the deal traded up in the initial aftermarket. The issuer
paid 40bp in fees.
Petrobras acceptance of
new pricing levels should jolt other corporate issuers into
entering the dollar-denominated international bond market.
However, the new issue window may temporarily close since
corporates have to release quarterly earnings from February 12
or face a market blackout and Latin firms are notoriously slow