Petrobras Returns to Europe

Petrobras has raised more than $3.3bn-equivalent during its second visit to the European and Sterling bond markets. Diversifying funding sources away from USD as it addresses $235bn in capex needs, the Brazilian state-controlled oil producer was seen pricing at levels for the most part competitive to its EUR, GBP and dollar curves. A EUR1.3bn ($1.68bn) 2019 tranche priced at 99.398 with a 3.250% coupon to yield 3.357%, or mid-swaps plus 212.5bp, the tight end of 215bp (+/- 2.5bp) guidance. A EUR700m 2023 tranche priced at 98.154 with a 4.250% coupon to yield 4.466%, or mid-swaps plus 257.5bp, the tight end of 260bp (+/- 2.5bp) guidance. In the sterling market, Petrobras priced a GBP450m ($730m) 2029 bond at 97.472 with a 5.375% coupon to yield 5.610%, or Gilts+320bp, the tight end of 320bp-330bp guidance. Bankers on the deal calculated flat to five basis points concession for all three tranches to their repective curves. “Petrobras’ Euro 10-year looked roughly flat to their USD curve before swap charges – so a solid outcome in terms of relative pricing versus USD and diversification of funding,” notes a LatAm DCM banker away from the deal. While seen as tight to the EUR and GBP curves, there was less consensus on attractiveness versus the USD. “Petrobras got great pricing versus Euros and Sterling and would like to have priced flatter to the dollar curve given the basis swap relationship. But the outcome was still very successful,” says another banker. “The deal is fair and not cheap enough to encourage dollar-based investors to make a switch for a handful of basis points because of the lack of liquidity of EUR and GBP,” says a London-based portfolio manager following the deal. Demand was heard to be roughly EUR3.8bn for the 2019, EUR2.4bn for the 2013 and more than GBP900m for the Sterling portion. Bankers note the issuer is keen not to saturate the dollar market, and transaction took advantage of European investors hungry for Euro-denominated fixed-income transact