Petrobras Raises $8.5 Billion in This Year’s Biggest Bond Sale

Petroleo Brasileiro SA (PETR4), Brazil’s state oil company, raised $8.5 billion in the biggest dollar bond sale of 2014 to help fund $221 billion of investment needs over the next five years.

In its second six-part dollar debt offering in 10 months, the Rio de Janeiro-based producer sold three- and six-year fixed- and floating-rate notes as well as 10- and 30-year fixed-rate bonds, data compiled by Bloomberg show. The biggest tranche is $2.5 billion in 10-year securities. The sale surpasses Cisco Systems Inc.’s $8 billion of issuance last month and is the largest offering of investment-grade bonds since Verizon Communications Inc. issued a record $49 billion in September.

“Everyone knows they need the money, and it makes sense for them to raise it now,” Carlos Gribel, vice president for emerging markets at INTL FCStone Securities Inc., said in a phone interview from Miami.

The world’s largest producer in waters deeper than 1,000 feet (305 meters) has $114 billion of debt, the most among oil companies globally. Petrobras, as the company is known, raised $11 billion in a six-part sale in May, the most ever for an emerging-market issuer, and sold about $5 billion of bonds denominated in euros and pounds on Jan. 7, data compiled by Bloomberg show. Average borrowing costs for Brazilian companies in the bond market have fallen to 6.56 percent from as high as 7.43 percent in September, according to data compiled by JPMorgan Chase & Co.

To attract bond investors, Petrobras offered a bigger premium over U.S. Treasuries than its outstanding securities, according to Klaus Spielkamp, a fixed-income trader at Bulltick Securities LLC.

‘Vicious Cycle’

Petrobras offered $2.5 billion of 10-year fixed-rate notes to yield 350 basis points above U.S. That’s about 30 basis points higher than bonds issued in May and maturing in 2023 pay in the secondary market today, according to data compiled by Bloomberg.

“A year from now, whoever buys it for the long term knows they will face competition again as new bonds come with a higher premium,” Spielkamp said by phone from Miami. “People start to remember this, and it creates a vicious cycle.”

The $1.6 billion of three-year fixed-rate notes sold to yield 250 basis points more than U.S. Treasuries, while the $1.5 billion of six-year fixed-rate bonds offered a spread of 330 basis points and the $1 billion 30-year tranche 360 basis points more, the data show.

The $1.4 billion of three-year floating-rate securities priced to yield 236 basis points more than the three-month London interbank offered rate while the $500 million of six-year floating-rate portion pay 288 basis points more than Libor.

Offshore Oil

Petrobras’s press office declined to comment. The producer is seeking to develop the biggest offshore oil find in the Americas in more than 30 years.

The company, which doesn’t expect to generate positive cash flow until 2016, had its credit rating cut in October to Baa1, the third-lowest investment grade by Moody’s Investors Service, which maintained its negative outlook.

Petrobras is also seeking to hire banks for a possible sale of at least 1 billion reais ($425 million) of tax-exempt bonds in the local market, according to two people familiar with the plans. The company is waiting for a presidential ruling that would make oil and gas projects eligible for favorable tax treatment as infrastructure bonds, according to the people.

HSBC Holdings Plc, JPMorgan Chase & Co., Banco do Brasil SA, Banco Bradesco SA, Citigroup Inc. and Bank of China (Hong Kong) Ltd. managed the dollar-bond sale.

To contact the reporters on this story: Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net; Boris Korby in New York at bkorby1@bloomberg.net

To contact the editors responsible for this story: Stephen Kirkland at skirkland@bloomberg.net Richard Richtmyer, Lester Pimentel

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