Petrobras sails back to market

Petrobras launched a 100-year bond on Monday, stealing the limelight in Latin American financial markets and paving the way for further Brazilian issuers to issue debt internationally. The $2.5bn issue, which yields 8.45%, garnered a hefty order book from investors — about $13bn.

“It answers a lot of the questions that the market has been waiting for, ‘who’s going to come to the market first? Who’s going to test the temperature of the water?’” said a DCM source told LatinFinance. “And this is the first significant dollar transaction that’s come.”

In May, JBS and Itau issued $900m and $1bn notes in the dollar market, but talk still circled of the sovereign or another large player to come to the market.

Since December, investors, bankers, governments and cross-border Brazilian issuers had awaited the publication of Petrobras’ audited results, including a write down for a corruption scandal that had engulfed the quasi-sovereign since November. 

For seven months Brazilian issuers abstained the cross-border market, some tied up in the scandal and others hit by contagion effects. In mid-April, Petrobras wrote down losses of BRL21.59bn ($6.8bn) in 2014 due to bribery, in what an investor said at the time was a credible financial hit. The Brazilian stock market rallied on the news and DCM bankers and investors pondered who would reopen the Brazilian market.

On Monday, the arrangers on the deal started pricing at 8.85% yield, which sources told LatinFinance drew orders for $7bn. Bookrunners Deutsche Bank and JPMorgan took pricing down before launch, to less than a 100 basis point premium to where Petrobras’ 7.25% $1bn 2044 was seen trading at midday Monday.

Although the Ba2/BBB-/BBB- company, after acquiring lines of credit with the China Development Bank and Brazilian banks, said it had its 2015 funding covered, analysts and investors told LatinFinance on the day of the bond sale that oil company still needed about $3bn.

After the surprise bond sale, observers were unsure what to expect next from the Brazilian firm. 

“I think the question really now is, ‘how does that leave Petrobras for the rest of the year? Are they going to come [back to the market]?’ I would have to guess that they probably won’t,” the DCM source said. LF