Petrobras Bonds Trounced by Pan American as Vote Looms: Argentina Credit

Bonds of Pan American Energy LLC, Argentina’s biggest oil exporter, are outperforming larger competitors Petroleo Brasileiro SA and Petroleos Mexicanos SA on speculation a new government may ease price caps on crude oil.

Pan American bonds due in 2021 returned 2 percent in the past month, compared with a 3 percent decline for the bonds of Mexico City-based Pemex with a similar maturity, according to data compiled by Bloomberg. Rio de Janeiro-based Petroleos Brasilero SA’s bonds due 2020 fell 2.6 percent.

Investors are betting an opposition candidate will unseat President Cristina Fernandez de Kirchner next year and ease restrictions in the oil and power industries. Companies including Spain’s Repsol YPF are seeking to reduce their business in Argentina as the nation’s oil fields mature and price caps limit the price they receive per barrel to $50.

“If there was a change in the regime in 2012, or an improvement in the rules to sustain the petroleum industry in Argentina, it would be good for Pan American,” Francisco Velasco, an analyst with Exotix Ltd., a brokerage specializing in emerging markets, said in a Nov. 24 telephone interview from New York

Fernandez maintained the price caps that started during Argentina’s 2002 economic crisis, the country’s worst, and were also used by Nestor Kirchner, her late husband and predecessor as president. Under current regulations, Argentina takes as tax any amount above the $50 a barrel that companies sell. Crude reached $88.63 in intraday trading on Nov. 11, the highest level in two years.

Photographer: Renzo Gostoli/Bloomberg

Pedestrians pass in front of the Petroleo Brasileiro SA headquarters in Rio de Janeiro, Brazil. Close

Pedestrians pass in front of the Petroleo Brasileiro SA headquarters in Rio de Janeiro, Brazil.

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Photographer: Renzo Gostoli/Bloomberg

Pedestrians pass in front of the Petroleo Brasileiro SA headquarters in Rio de Janeiro, Brazil.

Pan American Debt

Pan American’s debt is outperforming the Credit Suisse AG Latin American Energy Index, which fell 1.3 percent since Oct. 1, according to Bloomberg data.

Yields on Argentina’s dollar bonds tumbled earlier this month to the lowest in almost three years and stocks rallied after the death of Kirchner, Fernandez’s husband.

Fernandez in June restructured $12.2 billion worth of debt remaining from a record $95 billion default in 2001. Yields on Argentina’s dollar bonds tumbled to 8.35 percent on Nov. 4, the lowest since December 2007 and down from more than 12 percent in February. Kirchner’s death on Oct. 27 fueled speculation of resurgent opposition strength ahead of next year’s election.

Argentine companies including candy maker Arcor SA and real estate developer IRSA Inversiones y Representaciones SA are selling the most debt since 2007. YPF SA, the Argentine unit of Repsol YPF SA and the country’s largest oil producer, this month announced the return to global markets after 12 years with a plan to sell as much as $600 million of bonds.

‘Further to Go’

An official for Pan American in Buenos Aires, who declined to be named because he’s not authorized to speak publicly, declined to comment.

Pan American’s bonds are rated Ba2 by Moody’s Investors Service, four levels below the Baa1 rating of both Pemex and Petrobras.

Argentine bonds “have further to go,” Ruth Mazzoni, a corporate bond analyst at Standard Bank, said in a Nov. 24 telephone interview from New York. “When the bonds were priced there was a greater degree of uncertainty about liquidity within the Argentine economy this year.”

Pan American Energy, which is 60 percent-owned by London- based BP Plc, returned to international bond markets in 2010 for the first time in more than three years. The other 40 percent stake is owned by Bridas Corp., which is owned in equal parts by Argentina’s Bulgheroni family and by Cnooc Ltd., China’s biggest offshore explorer.

Credit Default Swaps

The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries widened two basis point to 523 at 10:02 a.m. New York time, according to JPMorgan Chase & Co.

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps was unchanged at 659 basis points yesterday, according to data compiled by CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Warrants linked to Argentina’s economic growth climbed 0.8 percent to 13.63 cents from 13.52 cents, according Bloomberg data.

The peso slid 0.2 percent to 3.9772 per dollar.

Pan American Energy’s annual output grew 8.5 percent between 2005 and 2009, while national output declined 6.4 percent, according to data published by the Buenos Aires-based Argentine Oil and Gas Institute, which does not publish older data.

More Output

BP has considered divesting its Pan American Energy stake, two people with knowledge of the matter said in October.

Pan American Energy’s crude output has grown over the past decade as overall production in Argentina dropped amid lower investment in exploration and development which also led to the country becoming a net importer of natural gas in the period.

Repsol of Madrid has sought to reduce its 84 percent stake in its Argentine unit, YPF, for more than two years to about 51 percent.

To contact the reporters on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net; Camila Russo in New York at crusso15@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net

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