Asia’s bond markets sprung back to life on Thursday after a two-week pause, with PTT Exploration & Production (PTTEP) taking advantage of improved market conditions to price a $500 million 30-year bond — the first 30-year deal out of Thailand since 2005.
PTTEP had held roadshows in May, but waited till Thursday to launch a deal. “It was a good day to launch. China cut rates, Spain had a successful government auction and there was an improvement in the sentiment in Europe,” said one banker.
Due to the choppy markets, the leads — Citi, Deutsche Bank, HSBC and UBS — had secured a number of anchor investors ahead of announcing the deal. They also told investors that the deal size was capped at $500 million. The initial guidance was at the 6.5% area and the final guidance was 6.35% to 6.4% with the bonds printing at the tight end. The deal attracted a $3.7 billion order book from 228 investors.
PTTEP is a key quasi-sovereign name — being the upstream oil and gas exploration arm of Thailand’s PTT. It is 66%-owned by PTT and, as such, it is expected to receive implicit government support. However, rating agencies have also warned that its debt levels are high, particularly since PTTEP in late May raised its bid for UK-listed Cove Energy to $1.9 billion. It is rated Baa1 by Moody’s and BBB+ by Standard & Poor’s.
On May 11, S&P revised its outlook on the company to negative from stable, explaining that it expects PTTEP’s debt to remain elevated for the next two years due to its growth strategy. PTTEP’s ratio of debt to capital stood at 42.5% as of December 31, 2011, and according to S&P credit analyst Andrew Wong, there is no room to weaken for the current rating.
The rating agency expects PTTEP to partly use debt to fund its acquisitions, which would weaken its credit metrics. “We therefore believe PTTEP’s financial metrics may breach our downgrade triggers over the next two years,” said S&P’s Wong in a report.
Meanwhile, on May 25, Moody’s also revised its outlook on PTTEP to negative from stable following its improved offer for Cove Energy, the company’s second major acquisition in less than 18 months.
“The deal, if completed, will leave little to no headroom under PTTEP’s existing ratings. Also, PTTEP already has a large ongoing capex programme. Hence, these factors will add considerable pressure to its rating,” said Simon Wong, a vice president and senior analyst at Moody’s in a report.
Bankers say the company is committed to maintaining its credit rating — and tapped the baht bond market last week with a hybrid issue.
PTTEP is no stranger to the dollar bond market — having issued a $700 million bond in 2011 and a $500 million bond in 2010. It has built up an investor following in the US and for its latest deal, US investors were allocated 47%, Asian investors 38% and the rest went to European investors. For its 2011 and 2010 deals, US investors took 56% and 20% respectively.
By investor type, fund managers were allocated 69%, private banks 9%, insurers 14%, banks 3% and the rest went to other investors.
PTTEP bonds priced at a spread of 359.6bp over US Treasuries. The outstanding PTTEP 2021s were at Treasuries plus 355bp and after taking into account the curve extension, a new 10-year bond would have come at a g-spread of 375bp. The new PTTEP June 2042s were straddling reoffer at Treasuries plus 360bp in secondary on Friday morning.