Crude market for GS Caltex

Korean oil refiner opts to keep new bond at $300 million as soft market continues.

Joint leads Barclays, Bank of America and Merrill Lynch priced GS Caltex's latest bond last night (October 19) on the tighter side of revised guidance after a soft opening for the debt markets in New York. When the Korean oil refiner wrapped up roadshows in London, New York, Singapore and Boston on October 18, many in the market had speculated that the borrower would opt to increase the size to $500 million in order to pay down debts. However, the leads convinced the issuer to maintain the conservative $300 million ceiling in lieu of recent instability in the marketplace.

The notes, rated BBB+ and Baa1 respectively by S&P and Moody's, were initially marketed to investors at an indicative range of 110bp to 115bp over 10-year US Treasuries or 62bp to 67bp over mid-swap, but as the markets weakened throughout the week guidance was revised to 112bp to 115bp over. Final pricing came at 99.465%, with a coupon of 5.5% to yield at 5.571%, which is equivalent to 113bp over Treasuries or about 65 over mid-swaps. In terms of comparables, the bookrunners had to look no further than already outstanding Caltex deals. Caltex's 5.5% July 2014 is currently trading at 106bp over Treasuries or 59bp over Libor. Caltex also has a 7.75% July 2011, which is quoted at 94bp over Treasuries or 46bp over Libor, although that deal is not actively traded. Bankers have estimated the 2014 to 2015 curve to be worth approximately 6bp to 7bp, at 113bp over the deal prices relatively flat to the existing 2014.

The deal garnered an order book just upwards of $700 million, equating to an oversubscription ratio of about 2.3-times. The final book saw 50-plus orders placed in total. Asian-based investors accounted for the majority of the book with 58%, 37% went to the US, while Europe only picked up 5%. In terms of account type, 40% were banks, 34% went to fund and asset managers, 22% to insurers and 4% to public banks and others. The new deal comes as a stark contrast to last year. When Caltex came to market with its 10-year deal last year, that book saw $2.025 billion in total orders, with a staggering 45% of accounts originating in the US. Unfortunately this time around the market environment wasn't as benevolent as current investor sentiment is more inclined to sell rather than toward buying new assets.

"It is a difficult time to be looking to raise money in the capital markets right now," says one industry insider. "If you can afford to wait, it is probably best to ride out this current soft patch."

The company is Korea's second largest oil refiner after SK Corp, and operates the world's largest benzene producing plant, used in the production of unleaded gas. GS Caltex has a crude oil refining capacity of 650,000 barrels of oil per day. The company also operates 3,000 petrol stations in Korea.