Petrobras forced to pay up in new bond trade
By Paul Kilby
NEW YORK, March 11 (IFR) - Petrobras was certainly impressive in building a USD23bn order book for its USD8.5bn six-part bond on Monday, but weaker demand than in years past - not to mention higher concessions - underscored the challenges the Brazilian oil name faces as it tries to reverse its reputation as one of the world's most indebted companies.
While demand was strong enough to meet an initial target size of USD6bn, according to one banker, the company is paying considerably more to access the liquid dollar market now than it had to last year, when it amassed a USD42.3bn order book for a USD11bn trade - then an EM record.
While it came with new issue premiums in the 3bp-10bp range in that trade, Petrobras ran into a less enthusiastic buyside this time round that wanted final concessions of 20bp-25bp.
If the company can win its high-stakes bet to strike it rich in Brazil's pre-salt offshore oil fields, and reduce net leverage that hit 3.2 times earnings last year, it may never have to pay such premiums again.
But skepticism abounds - especially as Petrobras struggles to meet leverage targets. Fourth-quarter numbers showed that higher production levels and better Ebitda were still not enough to create positive free cash flows.
"The only exit for Petrobras is to deliver what they have been saying, which is to have positive cash flows starting next year," said the banker.
"Then the amount of debt can be reduced, and they can start managing their curve. It is hard to see them issuing USD15bn to USD20bn a year. They are coming to an end of an era."