Thai oil company PTT Exploration and Production returned to the US dollar bond market on Tuesday night with a $700 million 10-year bond. Barclays Capital was the sole bookrunner.
The deal is one of the rare sole mandates out of Asia and probably generated some envy on the street. Rivals who pitched for the deal suggested that it was clinched on the back of a low 3bp fee, but one person familiar with the offering said that this was "categorically untrue" and that the fees were higher than that.
Barclays Capital has a close relationship with the company and has in the past few years been part of the arranger group of banks when PTTEP has issued baht-denominated bonds.
The bonds priced at Treasuries plus 225bp, at the tight end of the 225bp to 230bp guidance. The initial guidance was for a yield in the area of 235bp over Treasuries. The coupon was fixed at 5.692% and the notes were issued at par.
They were quoted at Treasuries plus 225bp/223bp in the secondary market yesterday morning, according to some market participants, although other quotes put the bonds slightly wide of the issue spread at Treasuries plus 226bp to 228bp.
PTTEP last tapped the international bond market in July 2010 with a $500 million five-year deal arranged by Credit Suisse and Royal Bank of Scotland. Since then, there have been some revisions to the company’s credit rating. In February, Moody’s downgraded PTTEP to Baa1 from A3, citing elevated credit risk resulting from its acquisition of a 40% stake in the Kai Kos Dehseh (KKD) oil sands project in Canada for $2.28 billion late last year.
“There was some discussion about the KKD acquisition, its capex plans, the Moody’s report and how to perceive the credit. But investors understood that it was a triple B credit of strategic importance to Thailand,” said the person familiar with the deal.
PTTEP is the exploration and production subsidiary of state-owned Petroleum Authority of Thailand (PTT).
Bangkok Bank was deemed to be the most meaningful comparison and this was what most Asian investors looked at to ascertain what PTTEP's fair value was. At the time of pricing, the Bangkok Bank 2015s were trading at Treasuries plus 160bp and PTTEP's existing 2015s were trading 25bp wider than that at Treasuries plus 185bp.
The Bangkok Bank 2020s were at Treasuries plus 202bp. Adding another 8bp to factor in the six-month extension for the new PTTEP 2021s and 25bp (the spread investors expected PTTEP to pay over Bangkok Bank), this put fair value of PTTEP's 10-year bonds at around 235bp over Treasuries, excluding any new issue premium.
However, rivals pointed out that Bangkok Bank's yield curve is steeper than most in the region, which would suggest that fair value is less than 235bp. For instance, the curve between ICICI Bank's five- and 10-year bonds is only worth about 35bp versus Bangkok Bank's 42bp.
PTTEP is rated Baa1 by Moody’s and BBB+ by S&P. Its new bonds mature on April 5, 2021.
US investors, which took up 56% of the deal, also looked at emerging market oil and gas comps such as Petrobras, Pemex and Gazprom, and saw value in the PTTEP bonds. Asian investors bought 30% and European investors 14%.
The deal gathered an order book of $1.7 billion. Asset managers bought 73%, insurance/pension funds 9%, government agency/sovereign wealth funds 7%, banks 6%, private banks 4% and others 1%.
The proceeds will be used for general corporate purposes and to fund the company's exploration, development and production activities. The notes were issued by its subsidiary PTT Canada International Finance.
PTT and some of its units, including Thai Oil, PTT Aromatics and IRPC, have outstanding dollar issues and it will be interesting to see if PTTEP's bond leads to any tightening in those bonds.
Elsewhere, Hana Bank has mandated Barclays Capital, Citi, Hana Daetoo Securities, HSBC and Standard Chartered Bank to arrange bond investor meetings in New York and London on April 4, in Boston on April 5, in Los Angeles and Singapore on April 6 and in Hong Kong on April 7.