Quasi-Sovereign Bond of the Year - Petroperú

Quasi-Sovereign Bond of the Year - Petroperú

Bonds Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Project & Infrastructure Finance Peru

Petroperú made its debut in the cross-border bond market last year, financing the expansion of its Talara refinery, which is expected to cost $5.4 billion.

Petroperú printed $2 billion in 15- and 30-year paper in June, raking in roughly $10 billion in orders. Bank of America Merrill Lynch, Goldman Sachs, HSBC and JPMorgan started initial price talk in the 5% area on the shorter-dated paper and around 6% on the 30-year bonds.

At guidance, the leads found space to tighten the 15-year notes to 4.875%, while the longer-dated notes were reeled in to 5.75%. The underwriters then priced both tranches at par, tightening the 2032s to 4.75% and the 2047s to 5.635%.

The company’s 15-year paper was 140 basis points over the sovereign’s curve, while its 30-year notes achieved a 142 basis point spread, which many considered generous given Petroperú’s high debt levels. In fact, Petroperú managed a tighter spread to its sovereign than the 160 basis point differential between Pemex and Mexico at the 10-year point of the curve.

At the end of 2016, Petroperú’s total financial debt reached 6.6 billion soles ($2 billion) and the company had a total net debt/EBITDA of 5.8 times. In order to convince investors it was committed to the company, the government set a $1 billion guarantee to finance modernization of the plant. The government also provided PEN1.1 billion in fresh capital in early 2017.

The stated-owned oil company received stiff competition from other quasi-sovereign institutions, including CFE, Mexico’s state-owned electricity utility, which recently became the first Mexican issuer to tap Taiwan’s Formosa bond market, raising $750 million in 2047 paper sold at a yield of 5.15%.

What distinguished Petroperú’s transaction from the others was its ability to overcome concerns about its high debt levels to finance a crucial project for its future. LF