Quasi-sovereign issuers 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 Santander.
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."