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DEAL OF THE YEAR: Best Quasi- Sovereign Bond

Jan 1, 2013

Petrobras $7bn 2015, 2017, 2021, 2041

Bigger is not always better. But in the world of one-day capital markets executions, if it is truly big, it had better be done truly well. Brazil's Petrobras raised the bar for itself in February. The $7 billion four-tranche sale was massive, but required delicate execution.

It set a new precedent for LatAm issuers.

The state-controlled oil company is one of only a handful of borrowers in the world that can execute multi-billion dollar deals that warrant four tranches, says Chris Gilfond, co-head of LatAm debt at Citi, a bookrunner on the transaction with Banco do Brasil, Itaú, JPMorgan, Morgan Stanley and Santander.

The sale topped Petrobras' 2011 $6 billion three-tranche offering and attracted more than $25 billion in orders. The demand allowed the issuer to tighten between 10 and 15 basis points from the initial guidance in each tranche.

"When you think about global borrowers, it doesn't get more sophisticated than that," Gilfond says. "They raised an extraordinary amount of money. They relied not just on emerging market investors, but oil and gas investors have come to dominate their order books."

Petrobras is already well established with multiple classes of global investors as it funds its 'Pré-Sal' exploration campaign.

A3/BBB/BBB rated Petrobras built a book of $16 billion by the day before the transaction. It followed this by printing a $1.25 billion 2015 tranche at 99.499 with a 2.875% coupon to yield 3.051%, or US Treasuries plus 275 basis points, and a $1.75 billion 2017 tranche at 99.419 with a 3.50% coupon to yield 3.628%, or US Treasuries plus 290 basis points.

The issuer also reopened its 5.375% 2021s for $2.75 billion at 104.181 to yield 4.796%, or US Treasuries plus 295 basis points, and its 6.75% 2041s for $1.25 billion at 111.208 to yield 5.935%, or Treasuries plus 295 basis points. Investors said it offered a 15 to 25 basis point concession to Petrobras' curve, depending on the tranche.

Poor secondary liquidity also drove some investors into the trade. Demand for the 2021 stood out in particular. Buyers included non-traditional retail investors from Asia, Europe and the Americas, bringing in institutional investors, hedge funds, insurance money and private wealth management.

Over 500 accounts participated, according to Itaú, with 68% allocated to asset managers, 10% to hedge funds, 10% to insurance, 4% to banks, 2% to pension funds and the remainder to other investors.

This was the largest debt sale globally since March 2011, according to Itaú. It was Latin America's second-largest ever bond with - the first was Venezuela state oil company PDVSA's $7.5 billion offering in 2007, according to Dealogic. Petrobras will no doubt have the Bolivarian oil company's mark in its sights when it looks to top 2012's offering this year. LF



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