March 10, 2014 / 3:42 PM / 4 years ago

UPDATE 1-Petrobras on target to print multi-billion dollar bond

By Paul Kilby

NEW YORK, March 10 (IFR) - Brazilian oil company Petrobras is offering investors a new issue concession of around 30-35bp on its new multi-billion dollar, six-part bond offering expected to price later on Monday.

Orders for the transaction have already reached USD12bn in what could be biggest ever from a corporate borrower in the region if it surpasses the company’s record-breaking USD11bn six-tranche transaction from last May.

Each year Petrobras has broken new ground in terms of size, and this time is expected to be no different.

“If you have a six tranche offering, that indicates they are gunning for a decently sized deal,” said one observer.

The transaction comprises of three-year fixed and floating rate bonds, a six-year floater and fixed, as well as fixed-rated 10- and 30-year tranches.

Initial price thoughts have been set at Treasuries plus 260 basis points (bp), 3-month Libor plus 246bp, Treasuries plus 340bp, 3-month Libor plus 298bp, Treasuries plus 360bp and Treasuries plus 370bp, respectively, by lead managers HSBC, JP Morgan, Citi, Bank of China, BB Securities and BBI.

Banca IMI and Scotiabank are co-managers.


Before the mandate announcement, the leads were quoting the existing Petrobras 3.25% 2017s, 3% 2019s, 4.375% 2023s and the 5.625% 2043s with G-spreads of 230bp, 265bp and 325bp and 335bp, respectively.

That indicates a 35bp new issue premium against initial price thoughts of Treasuries plus 360bp and plus 370bp on the 10- and 30-year bonds, and 30bp against the Treasuries plus 260bp initial price thoughts on the new three-year.

Fair value for the six-year was seen closer to 305bp, taking into account a steep 30bp extension from five to six years and adding an extra 10bp for the credit spread, and thereby indicating a new issue premium of 35bp based on the 340bp IPTs.

Petrobras’ bond spreads widened after the new deal was announced - shrinking the concessions closer to high-teens to mid-20bps on the 2017s, 2019s, 2023s and 2043s after they widened to G-spreads of 236bp, 283bp, 339bp and 348bp.

IPTs on the three- and six-year floaters were set at three-month Libor plus 246bp and plus 298bp respectively versus trading levels on existing floaters due 2016 and 2019 at 255bp-209bp and 280bp-258bp.

“Petrobras is about 15bp wider across the curve so they (the leads) will probably price the 10-year, 10bp to 20bp back to that,” said a trader.

Petrobras bonds have tightened over the last week against a better backdrop for LatAm debt issuers, but the company’s status as one of the world’s most indebted companies and expectations of a heavy supply calendar have weighed on prices and kept it cheap versus other Brazilian corporates.

“Private Brazilian companies have been trading inside Petrobras, but that has been going on for a while,” said the observer.

The Brazilian credit, rated Baa1 by Moody’s and BBB by both S&P and Fitch, has also been trading with a substantial pick-up to Colombian state-controlled oil company Ecopetrol, rated Baa2 by Moody‘s, BBB by S&P and BBB- by Fitch.

Ecopetrol has 7.625% 2019s, 5.875% 2023s and 7.375% 2043s trading with G-spreads of 165bp, 205bp and 264bp.

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