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Petrobras sails into Europe with record-setter

Jan 8, 2014

A four-tranche bond sale by the Brazilian quasi-sovereign comes as Latin American borrowers increasingly consider funding in euros over dollars

Petrobras on Tuesday became the first Latin American borrower to tap the cross-border bond market in 2014, turning to European investors for a $5 billion-equivalent deal that could herald a trend away from funding in dollars.

The Brazilian oil firm’s bond was split into three euro-denominated tranches totaling €3.05 billion ($4.15 billion), and a £600 million ($984 million) sterling tranche. The deal is the largest ever by an emerging market borrower in European currencies, according to Dealogic.

The bond sale picked up on an improving basis swap for borrowers in the euro market, which could entice more Latin American issuers. Lower benchmark rates in Europe — driven by the central bank’s continued stimulus program — could further encourage borrowers away from the dollar market.

Market participants nonetheless highlight that the European investor base is smaller than that of the US. Similarly, some smaller issuers prefer to maintain liquidity in an existing dollar curve.

The arranging banks priced Petrobras’ deal as much as 50 basis points tighter than where the quasi-sovereign might have funded in the dollar market, people following the transaction said.

Brazil’s development bank, BNDES, finished investor meetings in Europe today and could be the next LatAm borrower to issue in euros. LF

See complete pricing details on Petrobras’ bond sale in LatinFinance’s Daily Brief.

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