Cnooc Cuts Borrowing Costs as It Offers Bonds

Cnooc Ltd., China’s biggest offshore energy explorer, is marketing as much as $4 billion of bonds, a person familiar with the matter said today, after the company announced plans to help refinance its acquisition of Nexen Inc.

The offering would be the biggest dollar bond in Asia outside of Japan in more than nine years, according to data compiled by Bloomberg. Cnooc plans to sell four maturities of debt including 10-year notes at about 185 basis points over Treasuries, according to the person, who asked not to be identified because the terms aren’t set. That’s five basis points less than it paid for similar-maturity securities last year, the data show. The company was considering a sale of about $5 billion, two other people familiar with the matter said earlier this week.

China’s oil and gas companies sold a record $6.9 billion of dollar bonds last month, with China Petroleum & Chemical Corp. raising more than half of that as part of plans to purchase overseas assets and fund its international business. Average yields for such businesses in the region fell 18 basis points to 4.31 percent in April, the most in seven months, JPMorgan Chase & Co. indexes show.

“Yields for companies are already very low and Cnooc can take advantage of this, given it’s so highly rated,” said Gourav Dhavale, a Hong Kong-based Asia credit analyst at Nomura Holdings Inc. “Issuance from Chinese oil and gas companies should slow down for the rest of the year after the Cnooc deal because the volume has been huge.”

Cnooc Spreads

Cnooc’s offering would be the largest in the U.S. currency in Asia outside Japan since a $5 billion offering from Hutchison Whampoa Ltd. in November 2003, Bloomberg-compiled figures show. Petroliam Nasional Bhd. raised $4.5 billion in August 2009 in a combined bond and sukuk security sale.

Beijing-based Cnooc also plans to sell three-year securities at about 130 basis points more than similar-maturity Treasuries, five-year notes at about a 160 basis-point spread, and 30-year bonds at a premium of about 185 basis points more than Treasuries due 2042, the person said. Cnooc last year paid a 190 basis-point spread for 30-year bonds, data compiled by Bloomberg show.

China Petroleum & Chemical, known as Sinopec, last month paid 140 basis points more than U.S. government debt for notes due 2043, the data show.

Cnooc plans to use proceeds from the four-part offering to partly repay a $6 billion short-term bridge loan it used to buy Canadian energy producer Nexen, according to a stock exchange filing by the company dated yesterday. The $15.1 billion deal was the biggest overseas takeover by a Chinese company. Cnooc raised $2 billion from its dollar bond sales last year, data compiled by Bloomberg show.

Credit Risk

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment increased today, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose one basis point to 107 basis points as of 8:30 a.m. in Singapore, Westpac Banking Corp. prices show. The gauge slid 14.8 basis points last month, according to data provider CMA.

The Markit iTraxx Japan index advanced two basis points to 84 as of 9:38 a.m. in Tokyo, according to Deutsche Bank AG prices. That’s the biggest increase since April 16 after the benchmark declined for six consecutive days, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index climbed one basis point to 107 basis points as of 9:30 a.m. in Sydney, according to National Australia Bank Ltd. prices. The measure is poised for its first increase since April 26, according to CMA.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

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