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Wednesday August 5, 2009

Petronas US$2.5bil bonds oversubscribed more than five times

PETALING JAYA: Petroliam Nasional Bhd (Petronas) has received very good response for its soon-to-be issued US$2.5bil dollar bonds.

“The response has been very strong. The bonds have been oversubscribed by more than five times. The investors are mainly foreign and the Asian and European bids are especially strong.

“There is a demand for Malaysian sovereign credit as there have been very few issuances,” a source told StarBiz.

Bloomberg reported that Petronas would sell five-year sukuk and 10-year conventional bonds, which may be priced to pay about 175 basis points more than US government debt of similar maturities, according to the statement to investors from Citigroup Inc, one of the sale’s arrangers. A basis point equals 0.01 percentage point.

The five-year sukuk is said to be a minimum of US$750mil while the balance will be 10-year conventional bonds.

“The amounts can be increased if needed but the total amount will be at least US$2.5bil. The price of about 175 basis points more than US government debt of similar maturities is basically just a guidance.

“The pricing and allocation of the bonds are expected to be completed this week and the bonds issued a few weeks later,” the source said.

A fixed income analyst from a local brokerage is not surprised that Petronas is tapping the US dollar debt market.

“It is a normal exercise for big international corporates to restructure their capital management. This will make them more flexible for expansion and working capital purposes,” he said.

He added that another reason some companies tapped the capital market was to stay on the radar of investors – to be easily recognisable and “fresh in their minds”.

The analyst noted that the issuance would also help develop the bond market as a whole, especially the Islamic bond market.

Petronas president and chief executive officer Tan Sri Mohd Hassan Marican had said in earlier reports that the national oil company would raise funds if it was beneficial although it had a “comfortable’’ level of cash.

A Petronas official declined to comment when contacted.

Meanwhile, Fitch Ratings yesterday assigned the Petronas dollar bonds expected ratings of A.

It said in a statement that the sukuk, which follows an Ijara structure, ranked pari passu with Petronas’ existing senior unsecured debt.

“The proceeds from the sukuk will be used to purchase beneficial ownership of assets of certain Petronas’ wholly-owned subsidiaries located in Malaysia,” it added.

The proceeds from the conventional bonds will finance a portion of Petronas’ capital expenditure related to oil and gas exploration.

Moody’s Investors Service ranks Petronas’ debt at A1, its fifth-highest investment-grade rating. Standard & Poor’s grades it two levels lower at A-.

Petronas last sold bonds in US dollars in 2002, when it raised US$700mil by issuing 7% bonds due in 2012, which were priced to yield 196 basis points more than similar-maturity US government debt, according to data compiled by Bloomberg.

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