UPDATE 1-Books on YPF's USD1bn 10-year bond over USD4bn -sources

Mon Mar 31, 2014 4:26pm EDT

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By Joan Magee

NEW YORK, March 31 (IFR) - Books on Argentine oil company YPF's new USD1bn 2024 bond, due to price Tuesday via leads HSBC, Itau and Morgan Stanley, are in excess of USD4bn, sources close to the deal said on Monday.

Guidance on the bond, expected to be rated Caa1 by Moody's and B- by Fitch, has been tightened to 9% area after initial price thoughts were sounded to investors in the low-to-mid 9% range.

Leads are expected to squeeze pricing even further, shrinking the estimated 32bp new issue concession at the IPT stage, which assumed a yield of 9.25% and a G-spread of 662bp, observers said.

Some said that YPF could even try to price the new bond flat to its existing 8.875% 2018 issue, which is trading at a G-Spread of 630bp.

"Argentina has been rallying, so investors who are underweight have been hurt," said one senior syndicate official referring to strong demand for the deal.

YPF, which has been under Argentine government control since President Cristina Fernandez ordered 51% of the company be nationalized in 2012, is expected to use the proceeds to finance the country's shale oil and gas formation called Vaca Muerta, or "Dead Cow".

A US Department of Energy report has shown that Argentina has more natural gas trapped in shale rock than all of Europe, and the 774-trillion-cubic-feet bounty could transform the outlook for Western Hemisphere supply.

"Even with the shale reserves, I'd need a lot more yield," said one trader.

"But I have a lot of clients asking about it, because if you want to get in [on YPF] it's the only opportunity to do so. (Reporting by Joan Magee, IFR Markets; Editing by Natalie Harrison and Paul Kilby)