NEW YORK, May 17 (IFR) - By raising a combined US$14.25bn in
one day, Brazil's Petrobras and Indonesia's Pertamina
underscored the enormous bid for emerging market credits.
The two oil trades generated nearly US$60bn in demand
between them, endorsing the asset class's place in a global
credit market that was once the sole domain of G7 borrowers.
The abundance of global liquidity is clearly driving
investors into the arms of EM borrowers as they seek higher
yields beyond their own borders, but the diversity of accounts
in these deals illustrates how EM state champions are becoming
an essential part of top investment portfolios.
"Recent jumbo oil and gas deals reaffirm the thesis that the
high quality segment of EM is now formally part of 'global
credit', a space that was once primarily dominated by only US,
European and Japanese issuers," said Robert Abad, emerging
market specialist for fund manager WAMCO.
"The global liquidity cycle has only served to make these
strong issuers much more formidable in their industries and we
shouldn't expect that trend to reverse any time soon."
Both deals on Tuesday were record-breaking in their own
right. At US$3.25bn, the 10/30s combination from state-owned oil
and gas firm Pertamina (Baa3/BB+/BBB-) represented the biggest
offshore print from Indonesia.
The US$11bn multi-tranche deal from majority state-owned
Petrobras (A3/BBB/BBB), meanwhile, is the largest EM
bond ever, putting the borrower firmly in the ranks of the
world's top issuers. Just a handful of high-grade borrowers can
boast bigger deals, including tech powerhouse Apple, healthcare
company Roche, pharmaceuticals giant Pfizer and GE's financial
unit GE Capital.
The record sizes of both the Petrobras and Pertamina trades
and the fact that they come on the back of an additional US$8bn
from other EM oil companies in recent weeks show that supply has
yet to dent investor enthusiasm for certain EM credits - even
during a year when international EM debt issuance is set to
exceed last year's total of US$430bn.
Demand is especially keen for quasi-sovereign oil and gas
names, which arguably offer a safer stepping stone for crossover
accounts. Over the past few months, Sinopec, KNOC, CNOG, Gazprom
Neft, Alliance Oil, CNOOC and CNPC have all issued. Rosneft and
Pemex are still to come.
CASTING THE NET
That said, leads on Petrobras left no stone unturned when it
came to tapping into different investor appetites. By offering
five tranches with tenors from three to 30 years as well as
fixed and floating rates, the deal had broad appeal, luring
everyone from rate bears to those that liked duration.
Leads drew demand mostly from the US, but also saw European
and Latin American money, and even Middle Eastern and Asian
accounts that had never before participated in such deals.
"We did see Japanese money, and it has been a while since we
have seen that," said a senior syndicate official.
Japanese investors were familiar with Brazil from the
lending spree of the 1980s, while Taiwanese banks, which
increasingly participate in Latin American syndicated loans,
were buyers. With Pertamina, US, European and Asian accounts
were also well represented.
Aside from rising comfort levels with top EM names, abundant
global liquidity is also clearly lifting demand for names such
as Petrobras and Pertamina, which in the broader global context
look cheap but relatively safe given their quasi-sovereign
The presence of new Japanese investors is evidence of this
trend, as is participation from US high-grade accounts that have
traditionally kept EM at arm's length.
"A lot of this has to do with where US interest rates are,"
said the syndicate manager. "Even if they jump 50bp to 100bp we
are still at historically low levels and investors are looking
Indeed, investors cast aside credit concerns about Petrobras
- the world's most highly indebted company - and bought the
paper in force, pushing demand up to US$40bn-plus. Leads may
have telegraphed tight new-issue premiums to secondary levels,
but the paper was largely seen as cheap in the context of
broader comparables and where the credit had been trading
earlier in the year.
A 10-year from Pemex (Baa1/BBB/BBB+), for instance, was
trading last week at around 3.5%, while split-rated
(Ba1/BBB-/BBB-) Mexichem's 10-year was being quoted with a yield
of 3.80%. That compares with Petrobras's new 10-year, which was
priced to yield 4.522%, and Pertamina's at 4.30%.
"Mexico has a better rating and its economy is different
from Brazil's, but a 100bp differential is a little bit
exaggerated," said Klaus Spielkamp, a trader at LatAm specialist
financial firm Bulltick in Miami. "I have never considered
buying Petrobras as, in my mind, it was always too expensive,
but when I saw it trading at 4.50%, it was clear to me that it
Still, despite a somewhat deteriorating credit story,
investors were more than comfortable with what is essentially
"It doesn't matter how bad the company may look. It is
Brazilian risk," added Spielkamp.
(This story will be published in the May 18 issue of
International Financing Review, a Thomson Reuters publication;
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