Pertamina’s seven-year journey to the international debt market finally came to an end early yesterday morning when the Indonesian oil and gas company priced a $1 billion 10-year bond.
The deal has been mired in red tape and bureaucracy for years, but after plenty of false starts, the deal finally got underway 18 months ago when the three bookrunners — Citi, Credit Suisse and HSBC — started work on bringing Pertamina’s debut bond to market. Danareksa Sekuritas and Mandiri Sekuritas were also involved in the deal as co-managers.
“There was a lot of headache involved,” said one source familiar with the deal. “It was a colossal task getting the books audited and I remember a meeting where there were 50 people in the room including company officials and politicians.”
Investors had been expecting Pertamina’s debut benchmark deal since the Republic of Indonesia issued its 10-year bond last month – and during last week’s global roadshow the bookrunners built a $3 billion shadow order book, in the absence of any price guidance.
The company has transformed its image under the leadership of chief executive Karen Agustiawan, who became the first woman to head Pertamina in 2009. Since then, the once-unwieldy state-owned enterprise has established strong growth prospects and shown ambition to grow overseas through acquisitions. Indeed, just a few days ago it bid roughly $3.5 billion for Exxon Mobil’s 25% stake in an Angolan oil block.
“The deal had a lot going for it,” said another source familiar with the transaction. “It was an Indonesian credit of strategic importance to the government and there is also a potential uplift as there are expectations that Indonesia could be upgraded to investment-grade status.”
Sure enough, Pertamina’s debut bond proved to be a resounding success, with 330 accounts placing $7 billion of orders.
Pertamina is rated Ba1 by Moody’s and BB+ by S&P and Fitch, and it shares the same rating as the Indonesian sovereign. It is wholly owned by the Indonesian government though the state-owned company has been mulling an IPO for years.
The bonds offer a change-of-control put at 101 if the government’s stake in Pertamina falls below 50%, which gave investors comfort.
The initial guidance was released on Monday at 5.625% to 5.75%. This was later tightened to 5.5% to 5.625%, with the bonds pricing at the tight end of final guidance to yield 5.5%. The coupon was fixed at 5.25%.
The deal received strong participation from US investors, who bought 42%. Asian investors bought 36% and European investors bought 22%. The book was dominated by fund managers, which took 70%, while insurers, pension funds and central banks bought 12%, banks 10% and private banks 8%.
The bonds also rose in early trade and they were quoted at 98.25, slightly above the 98.097 reoffer yesterday morning. They rose further to 98.75 later in the afternoon.
Coming at a yield of 5.5%, the new Pertamina 2021s were paying about 60bp over the Indonesia 2021s, which were bid at 4.9%. On a z-spread basis, the Pertamina bonds priced at a z-spread of 236bp, while the Indonesia 2021s were trading at a z-spread of 168bp, reflecting a 68bp differential.
This differential compared favourably to Indonesian state-owned company PLN, which was bid at a yield of 5.444% and a z-spread of 260bp. The Indonesia 2020s were trading at a bid yield of 4.619% and a z-spread of 168bp, reflecting a yield differential of 82.5bp and a z-spread differential of 92bp. However, PLN is a slightly weaker credit than Pertamina.
A z-spread is a measure of credit spreads without the distortion of a yield-to-maturity calculation.
For comparison, the yield differential between Petrobras and Brazil was about 85bp, Pemex and Mexico was about 70bp, Gazprom and Russia was 75bp to 85bp. Meanwhile, Psalm (which benefits from an explicit guarantee) and the Philippines sovereign showed a yield differential of 55bp to 60bp.
In 2010, Pertamina had revenues of $48.7 billion, earnings (Ebitda) of $4.2 billion and debt of $4.4 billion. Including Pertamina’s latest issue, the total US dollar issuance for Indonesia chalks up to $3.9 billion year-to-date.
“The total issuance this year has been dominated by China. Prior to Pertamina pricing, Indonesian dollar issuance has made up about 1% of total issuance and that has since moved up to about 3%,” said a source. “There is still plenty of appetite for Indonesian credits -- as seen from recent deals such as Indika and Bakrie Telecom,” he added.
A growing number of national oil-and-gas companies are tapping the dollar bond market — with recent deals from the likes of CNOOC and PTT Exploration & Production.