(Add final yield and size)
By Paul Kilby and Davide Scigliuzzo
NEW YORK, June 1 (IFR) - Brazilian oil company Petrobras was set to raise US$2.5bn on Monday after launching a rare Century bond - its first international debt foray in over a year.
Launched at 8.45%, the larger-than-expected deal is coming well inside initial price talk of 8.85% area and at the tight end of guidance of 8.55% (plus/minus 10bp) on the back of a multi-billion dollar book.
The rare Century bond turned heads but some questioned whether the company, locked out of debt capital markets for more than a year, was being too ambitious opting for such a long maturity.
Petrobras, still reeling from a wide-ranging corruption scandal, is looking to make a bold statement about its credit-worthiness with Latin America’s first corporate Century bond in close to 20 years, according to IFR data.
The company could ill afford a failed deal, and pulled out all the stops to get this deal done successfully by offering juicy new issue concessions on the new issue.
At initial price thoughts of 8.85% area, it was offering a pick-up of approximately 150bp to the 30-year part of the borrower’s curve, where the existing 2043s and 2044s have been trading at 7.23% and 7.40% respectively.
At the final yield of 8.45% area, that shrank to around 110bp, but is still considerably wider than the 80bp-85bp differential seen on Mexico’s 30s to 100s curve. Mexico is the only other borrower in Latin America that has sold a Century bond in recent years.
This generous pricing had the buyside paying attention amid talk of an up to US$10bn book, accounts contacted by IFR said.
But some bankers said Petrobras could have paid substantially less with a shorter maturity.
“They are going to pay 150bp for a duration extension that is irrelevant,” said a banker away from the deal. “Why not do a five year? Which credit issues such a long tenor when their bonds are trading as bad as they ever have?”
Racked by a kick-back investigation and controversy over a delayed release of its financial audited statements, spreads on Petrobras bonds have widened by 300bp over the last few months. It has clawed back some of those losses recently.
Others praised Petrobras for its decision amid hopes the deal could open funding access for Brazilian issuers, several of which have already sold bonds over the last month.
“The idea is to make a bold statement,” said another banker. “Doing a tenor that has only been done by a select group of issuers shows strength.”
It is also seen as credit positive from the rating agencies’ perspective.
“If Petrobras succeeds in placing this proposed issuance, it will be viewed as a positive step in regaining access to the debt capital markets, which it relies on to support its investment plan and funding needs,” said Lucas Aristizabal, a senior director at Fitch Ratings.
Besides Mexico, Chilean utility Endesa sold a Century bond in 1997, according to IFR data.
“The deal should be interpreted as positive to the extent that they are able to access the debt markets and extend duration so significantly,” said Jack Deino, head of emerging market portfolio management at Invesco.
“If it ends up pricing at such a perceived concession, it should trade well initially,” said Deino.
The last dollar bond sold by Petrobras in March 2014 was a six-tranche US$8.5bn issue whose spreads widened slightly after the announcement today.
The 7.25% 2044s, the company’s longest dated notes, were bid 4bp-5bp wider at a spread of 445bp, according to a New York-based trader.
Bookrunners Deutsche Bank and JP Morgan are expected to price the new issue later today. (Reporting by Davide Scigliuzzo, Paul Kilby and John Balassi; Editing by Natalie Harrison and Shankar Ramakrishnan)