Markets Debate YPF Pricing

Whether YPF would pull the trigger this week remained unclear Wednesday as markets struggled to reach a consensus on pricing for the Argentine oil and gas company’s new 8-year, 7-year average life bond. Talk among investors ranged anywhere from the low 6s up to 7%, at least as a starting point, but leads failed to emerge with any official guidance after wrapping up roadshows yesterday. Today may be a different story, though recent volatility has made life difficult for several borrowers eyeing issuance this week. Markets did received a boost early Wednesday after China emerged with strong economic data and Fed chairman Ben Bernanke expressed a willingness to implement more quantitative easing. But continued unease over Europe’s debt crisis plus Moody’s move yesterday to put the US on review for a downgrade are weighing on sentiment. It is thought that YPF wants to showcase what is a rare bond for one of Argentina’s few blue-chip names and it is unlikely to pay a volatility premium given it has no real funding needs. “It is not a question of price discovery. It is a matter of finding the appropriate markets conditions and building a trade that the company would be happy with,” said one banker. In regards to pricing, investors were largely debating where YPF, owned by Spain’s Repsol, should come against another Argentine oil and gas company, Pan American Energy (PAE), which is now jointly controlled by Bridas and China’s CNOOC. “Where YPF comes depends on whether you think it is a better credit than Pan American,” said one banker. PAE’s bonds were trading at around 6.90%, but they have a longer 2021 maturity and under better market conditions can be quoted as tight as 6.625% (+/- 1/8), according to one trader. One investor who liked YPF and saw some scarcity value in the name thought the company could come at 6.25%-6.375%, while some put a final print at around 6.625%-7.00%. This compares to the sovereign’s New York law 2017s which were trading at around 8%, while YPF