Petrobras $6bn tender/new issue

Brazil’s state-owned oil
company is one of the world’s most indebted. But, under pressure from investors, the firm made
strides in improving its financial profile and reducing leverage in 2016.

Divestments have been a big part of the strategy. Among Petrobras’ highest-profile asset sales were its $5.19 billion deal to offload 90% of natural gas pipeline
Nova Transportadora do Sudoeste (NTS) to a consortium led by Brookfield.

But debt management operations have also played an important part and a mid-year liability management exercise was particularly impressive. In May, Petrobras issued $6.75 billion of five and 10-year bonds to fund a buyback offer. The new issue was the first from a Brazilian borrower in the international bond market in close to a year. The deal’s audacious size and impressive timing make the transaction stand out to win LatinFinance‘s Corporate Liability Management of the Year. 

“Markets had been closed to Brazil, and uncertainty of the political scenario in the country made it challenging,” Bianca Nasser, Petrobras’ corporate finance manager, says. 

Still, Petrobras chose its moment well: oil prices had rallied around $10 a barrel, coinciding with the borrower’s spreads compressing some 100 basis points in the weeks ahead of the new issue. 

The oil company announced a new bond sale in conjunction
with a tender offer in mid-May. It priced an 8.375% $5 billion 2021 bond and an 8.75% $1.75
billion 2026 in an intraday execution to minimize market risk. At the same time, it launched a tender offer in which it ultimately bought back over $6 billion in bonds maturing in 2017, 2018 and 2019. 

Petrobras has adopted a conservative approach to issuing debt but has taken advantage of good market conditions when they are available. Indeed, Petrobras returned to the market in July to add $3 billion to the dual-tranche issue it launched in May.

Pemex’s September 2016 tender and
exchange offer, which targeted eight series of dollar-denominated securities maturing between 2018 and
2044, was another strong contender in this category. Ultimately, the higher stakes of the Petrobras transaction for the company, and the fact it ended a dry spell for Brazil’s issuers in the international bond market, made it a compelling winner.

Looking ahead, Petrobras is likely to repeat the liability management structure to “rollover
maturities amortizing soon”, Nasser says. But new bond issues on their own are unlikely. Cash from operations and divestments should cover coupons and amortizations for the next five years, she says. 

Nasser is bullish on the operating environment, saying reforms being passed “will be positive for corporates”. She points to a new law allowing other companies to participate in offshore pre-salt oil projects as an example. The new regulations will give Petrobras the right of refusal, ending its current obligation to take at least 30% in
all pre-salt developments.

“We are only witnessing upsides,” she says. LF

—

Size: $6bn

Date: May 2016

Supporting banks: BB Securities, JPMorgan, Bank of America Merrill Lynch, Santander, BNY Mellon

Supporting law firms: Cleary Gottlieb, Shearman & Sterling, Pinheiro Neto, Petrobras in-house counsel

—