The vagaries of markets and the regulations governing them often encourage companies to look for novel ways to raise capital. At least that was the case for energy infrastructure company Yinson Production, a leading independent provider of floating, production, storage and offloading (FPSO) vessels.
In May, the Singapore-headquartered company issued a $1.035 billion project bond to refinance Anna Nery, its first offshore FPSO project in Brazil, one of the world’s emerging oil production markets. It was a rare such bond issued by a player in a sector that has tended to rely on bank financing rather than bond markets to meet its capital needs.
But as a result of regulatory pressures, traditional lenders have shown less appetite for assets linked to ultra-long-term contracts, such as FPSO, says Markus Wenker, Yinson’s CFO. What’s more, FPSOs are seen as a relatively illiquid asset class, as their real value lies in contracts signed with off-takers, rather than the physical asset itself. All this combined to encourage Yinson’s interest in a capital markets solution.
“Investors such as pension funds and asset managers actually like bonds linked to very long contracts,” he says. “It was clear for us that, to refinance the mini-perm for Anna Nery, we should opt for a project bond.”
That decision entailed other challenges, as appetite for project bonds or emerging market risk has been fickle over the past couple of years. But Yinson spotted then grabbed an opportunity in May, as sentiment US interest rates improved along with investor risk appetite. “We had a pretty good timing with the issuance,” Wenker says.
Yinson managed to issue an 18.2-year project bond linked to an asset that has a 24-year contract signed with Petrobras, Anna Nery’s single offtaker. The deal helped the firm to free up more than $200 million of equity, Wenker says.
The issuance was 2.2 times oversubscribed, with the participation of more than 100 accounts, according to Citibank. It was the largest project bond out of Latin America since 2021 and the largest ever such bond out of Brazil, the bank says.
The tremendous appetite for the issuance also reflects the weight of Brazil in the FPSO sector; the country is right now the world’s largest market for floating platforms, says Flemming Grønnegaard, Yinson Production’s CEO. Anna Nery is Yinson’s first FPSO project in the country, and two more will start operations in 2024. In May, the company opened an office in Rio de Janeiro, and other parts of the region, including Guyana and Mexico, are also on the company’s radar.
“We have much appetite for the Latin American market, and we want to remain an active player going forward,” Grønnegaard says.
Yinson Anna Nery FPSO Refinancing
Sponsors: Yinson Production Offshore Pte Ltd., Sumitomo Corporation
Issuer’s Counsel: Cescon, Barrieu, Flesch & Barreto Advogados, Lennox Paton, Norton Rose Fulbright
Global Coordinators, Joint Bookrunners: Citibank, HSBC, JPMorgan, ING, Natixis, Santander
Co-Managers: Bladex, Mizuho, Ramirez & Co., Standard Chartered
Lenders’ Counsel: Latham & Watkins
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