CNOOC retails $3.8b triple-tranche bond

Chinese oil and gas major taps Asia’s bond markets while US Treasury yeilds remain low and pending the outcome of the Fed's two-day policy meeting.

China National Offshore Oil Corporation sold a $3.8 billion triple-tranche debt offering early Wednesday morning, tapping a window of opportunity ahead of the outcome of the Fed’s policy meeting.

Rated Aa3/AA-, the world’s largest offshore oil and gas producer’s latest SEC-registered offering consists of a $1.5 billion five-year bond, $2 billion 10-year note and $300 million 30-year paper, according to a term sheet seen by FinanceAsia.

The five-, 10- and 30-year tranches priced at Treasuries plus 128 basis points, 160bp and 149.6bp respectively, are approximately 20bp tighter than their initial price guidance areas. The five- and 30-year notes were issued by CNOOC Finance (2015) Australia, while the 10-year note was issued by CNOOC Finance USA. All three tenors are guaranteed by the parent, CNOOC.

Proceeds of CNOOC’s bond will be used for general corporate purposes, according to the company’s prospectus. The last time the Chinese oil and gas firm tapped Asia’s debt markets was exactly a year ago, when it priced a $4 billion triple-tranche bond.

CNOOC’s bond comes on the heels of Sinopec’s multi-tranche $4.8 billion and €1.5 billion ($1.65 billion) deal last week. It also comes shortly after Petronas’s $5 billion blockbuster issuance in March — a sign that investors are warming to a sector that was plagued by falling oil prices in the beginning of the year.

Brent crude prices rebounded to nearly $65 per barrel on Wednesday morning, gaining almost $9 since March and indicating a stabilising outlook for the commodity, according to Bloomberg data.

This has encouraged other Asian oil and gas companies to come to market. Rated Baa3/BBB-, India-based Bharat Petroleum priced a $500 million bond at Treasuries plus 208bp, which is 17bp tighter than its initial price guidance area. 

Citi, Deutsche Bank, HSBC and Standard Chartered were the joint book runners of Bharat’s Reg S-only transaction, which priced Wednesday evening.

Asian borrowers are also keen to tap the window before the start of the upcoming Labour Day holiday and as investors await the outcome of a two-day Federal Reserve policy meeting on Wednesday, US time.

Fed Chair Janet Yellen and her colleagues last month held open the possibility of tightening rates as soon as June, while suggesting in separate forecasts a more likely September event. Seventy-three percent of 59 economists in a Bloomberg News survey conducted April 22-24 said the first rate increase since June 2006 will come in September.


The nearest comparables for CNOOC’s five-year tranche include the likes of its existing bonds maturing in January 2021 that were trading at a G-spread of 125bp on Tuesday morning. Other comparables include Sinopec and Korea Oil and Gas’s outstanding notes expiring in April 2020 and January 2019 that were trading at a G-spread of 124bp and 95bp.

As for the 10-year, CNOOC’s existing bonds maturing in April 2024, which were trading at a G-spread of 153bp were used as comparables. Other comparables include Sinopec and Korea Oil’s paper expiring in April 2025 and July 2024 that were trading at a G-spread of145bp and 90bp respectively.

For the 30-year tranche, CNOOC also has outstanding notes expiring in April 2044 that were trading at a G-spread of 162bp. Moreover, Sinopec’s bonds maturing in April 2045 were used and were trading at 153bp, according to a source familiar with the matter.

This puts fair value for the five-, 10- and 30-year at Treasuries plus 130bp, 155bp and 162bp, said Mark Reade, fixed income analyst at Mizuho Securities.

“And even at that fair level we would still recommend investors [to] buy the deal given our expectation that China oil and gas bonds will outperform while US Treasury yields remain low — as we expect they will, at least through 2015,” Reade said.

“That’s because we anticipate that Asian investors will continue buying Chinese oil and gas bonds because of their pick-up to Korean quasi-sovereign [comparables] and US investors will continue buying them because of their pick-up to lower-rated domestic players," he added.

CNOOC is China’s dominant offshore oil and gas producer with net proven reserves of 4.5 billion barrel of oil equivalent. As such, the company is among the largest exploration and production companies in the world.

Listed in Hong Kong and New York with a market capitalisation of HK$590 billion ($76 billion), the company is 64.4% owned by CNOOC Group, which in turn is 100% owned by China’s central government.

BOC International, Citi, Credit Suisse and Goldman Sachs were the joint global coordinators and book runners of the transaction. Other book runners include Bank of America Merrill Lynch, CICC HK Securities, ICBC International, JP Morgan, Morgan Stanley, Société Générale and Standard Chartered. 

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