Petrobras Rules Bond Sales as $8.5 Billion Follows Euro Deal

Petroleo Brasileiro SA (PETR4) sold $8.5 billion of bonds yesterday, cementing its position as Latin America’s biggest debt issuer.

Petrobras, as the state-run oil company is known, issued debt due between three and 30 years, bringing the total amount of overseas notes issued this year to $13.6 billion. The producer accounts for 40 percent of debt sold by Latin American governments or companies this year, compared with 9 percent in 2013, according to data compiled by Bloomberg.

Investors snapped up the securities after the Rio de Janeiro-based company offered yields that were as much as 0.45 percentage point higher than existing bonds, helping to overcome concerns that the sale would create a glut of supply. Petrobras is raising funds to pay for a $221 billion five-year investment plan designed to bolster production.

“If there were any issues with regard to the amount they were coming to market for, they seemed to have dealt with that with the pricing,” Michael Roche, a credit analyst at Seaport Global Holdings LLC, said in a telephone interview. “The pricing across the curve was generous in comparison to existing Petrobras issues and similar comparative credits.”

The company sold $2.5 billion of 10-year bonds to yield 350 basis points over Treasuries, compared with a 306 basis point gap for existing bonds on March 7, before the sale was announced, according to data compiled by Bloomberg. It also issued $1 billion of 30-year debt at a spread of 360 basis points, $1.5 billion of six-year bonds to yield 330 basis points over Treasuries and $1.6 billion of debt due in three years at a 250 basis point gap.

Oversupply

The offering included $1.9 billion of floating-rate notes due in three and six years.

Petrobras’s press office declined to comment.

The sale shows a revival in Brazil’s debt offerings after January marked the slowest start to a year since 2003, according to Robert Abad, who helps oversee about $53 billion of emerging-market debt at Western Asset Management Co.

“This looks like an interesting opportunity,” Abad said in a phone interview from Pasadena, California. “There’s demand for paper. There’s demand for yield. That’s not going to go away any time soon.”

Petrobras is raising funds as it seeks to develop the biggest offshore oil find in the Americas in more than 30 years. It sold $5.1 billion of bonds denominated in euros and pounds on Jan. 7, after raising $11 billion in a six-part sale in May, the most ever for an emerging-market issuer.

Most Indebted

The yield on the producer’s $3.5 billion of bonds due in 2023 have climbed 1.42 percentage points since they were issued last year to 5.95 percent as of 10:54 a.m. in New York.

“I am concerned that the company could be generating an oversupply,” Rafael Elias, a New York-based analyst at Credit Agricole SA, said in a note to clients. ’

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.

Moody’s Investors Service cut the company’s rating in October to Baa1, the third-lowest investment grade, with a negative outlook citing the increasing debt. Petrobras doesn’t expect to generate positive cash flow until 2016.

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

This Year

Before Petrobras’s sale, Brazilian issuers had sold $7.5 billion of debt this year, 19 percent more than in the same period a year earlier. Mexican overseas bond sales have more than doubled in 2014, according to data compiled by Bloomberg.

The extra yield investors demand to own Brazilian government dollar debt instead of Treasuries widened 0.02 percentage point yesterday to 2.37 percentage points, according to JPMorgan. The Ibovespa benchmark stock gauge is within 1 percent of entering a bear market on concern that the economy will slow after China reported the biggest slump in exports since 2009.

“Petrobras is big and there’s huge demand across the spectrum whether it’s in emerging-market funds or high-grade funds that want a little Latin flavor to their portfolio,” Russell Dallen, the head trader at Caracas Capital, said in a phone interview from New York. “It’s relatively easy for them to place $8.5 billion.”

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net; Sonali Basak in New York at sbasak7@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Lester Pimentel

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