Petrobras and ENAP attracted a total of $7.5bn demand for their
new deals this week, uncorking bottled-up demand for quality
Latin American credits.
Brazils oil giant Petrobras (Baa1/BBB-/BBB) on Wednesday
re-opened its 7.875% February 2019 bonds for $1.25bn at 106.96
to yield 6.875%, 332bp over US Treasuries. This was at the
tight end of the 7% area guidance. The deal was managed by JP
Morgan, HSBC, Santander (all three provided a bridge loan to
the firm in February) as well as Citi. After the deal was
announced without roadshow, it attracted $4bn of orders within
an hour and the leads closed the books at 11am after receiving
$6.3bn of orders in total.
"Petrobras is a high quality and savvy issuer while investors
want exposure to high quality Brazil risk so thats why
this transaction attracted so much demand," said a banker on
deal. Bankers on the deal said it offers a 27bp concession to
its outstanding 2019s and around a 115bp pick-up to the
sovereign. In typical transactions, government-backed entities
such as Mexicos Pemex, Chiles Codelco and Petrobras
pay 75bp-100bp concession to the sovereign. The extra premium
was incurred due to the size of the retap. The deal traded up
to 108.75 on Thursday.
The US bought 68% of the paper, Europe 27%, and Latin America
5% and the order was dominated by real money accounts. The
issuer paid 40bp in fees. A new 10 year spot on Petrobras curve
was not chosen since the 2019 benchmark was launched only in
February and a rival spot risked alienating existing investors,
diverting liquidity and would have incurred a higher premium,
said bankers. The issuer has large financing needs but chose
not to increase the deal in order to stabilize secondary market
prices and hammer down the concession. Investors sought
exposure to Brazil risk and ignored the recent downgrade of
Petrobras by Standard & Poors from BBB to BBB- after
the agency cited concerns about the firms ambitious
$174bn five year investment plan.
Chiles government-linked oil producer ENAP also launched
a popular international bond this week but opted for a tighter
priced and smaller sized transaction. On Tuesday, the issuer ,
rated A3/BBB/A, issued $300m of 10 year notes after going on a
brief roadshow last week via BNP Paribas, HSBC and
The issuer sent out a spread guidance of 300bp over US
Treasuries and after attracting $1.5bn of orders, priced the
deal at 99.144 to yield 6.367%, or 287.5bp over US Treasuries.
Chile is an infrequent sovereign issuer and ENAP last came to
the markets four years ago so its 2012s and 2014s are generally
illiquid. As a result, its quasi-sovereign counterpart Codelco
remains the reference point for pricing. Bankers away from the
deal say the $300m 2019s offer 100bp concession to
Codelcos 2019s. Investors flocked to the deal despite the
issuers militant insistence that the deal would not be
increased and, therefore, limiting the liquidity in the
transaction, said bankers.
Around 100 accounts participated with a higher proportion of
London-based buyers, who suffer from a lack of high quality new
issues in emerging European markets, snapping up the deal.
Around 45% of the bond was bought by the US and 43% by UK
investors. Market players said the deal was entirely fair.
"This is a well priced and a run-of-the-mill transaction," said
a banker in New York. "The strength of the demand for the
Petrobras and the ENAP deals highlights how much liquidity
there is out there and how open the new issue market is for
high quality names."