Pertamina raises $1.5bn landmark bond

The Indonesian state-owned oil and gas company sold a 30-year note, achieving the tightest spreads on record compared to the sovereign.

Pertamina has issued a $1.5 billion 30-year bond, obtaining the tightest ever spread compared to the Indonesian sovereign as US investors scramble to hold credit from the country’s scarce high-yield space.

According to Dealogic data, Indonesia’s high-yield bond market has only seen volume of $606 million with four deals year-to-date, which is more than a third less than 2013’s volume of $2.1 billion with six deals.

This has allowed Pertamina, the Indonesian state-owned oil and natural gas company, to price its 144A/Reg S-registered deal at the tightest spread on record, a source close to the deal said.

The new issue premium that the Indonesian state-owned oil and natural gas company had to pay over the Republic of Indonesia has narrowed from 100bp in 2012 to only 60bp.

“We will continue to see improvement in the spreads as the issuer continues to expand its investor base,” the source said. “It’s a return issuer and a credit that everybody is familiar with.”

As a result, Pertamina was able to tighten its pricing from an initial price guidance area of 6.7% to 6.45%, according to a term sheet seen by FinanceAsia.

Although a rising rates environment technically should have deterred investors from participating in long-dated paper, a syndicate banker notes that current low US Treasury yields is an indication that the market is not expecting long-term rates to rise anytime soon.

The Fed has kept its target rate at 0% since 2008, when it slashed rates in an effort to stimulate the economy and combat the recession. However, members cautioned during the recent Federal Open Market Committee meeting that a discussion did not signal a rate rise was imminent.

Most observers expect a rate rise in the latter half of 2015.

“The market doesn’t expect rates to increase very quickly and this is because the US’s inflation looks rather benign,” said a Hong Kong-based syndicate banker.

The US economy is showing little sign of shaking a long spell of sluggish price gains, with inflation undershooting the Fed’s 2% target yet again. Prices were up 1.1% in March from a year earlier.

Ten-year US Treasury yields have also declined to about 2.5% from 3% at the beginning of the year, touching 2.55% on Thursday, according to Bloomberg data.

Strong US investor base

Pertamina received an order book of more than $6 billion from more than 250 accounts, notably from US investors who snapped up nearly half of the paper. Europe subscribed to 27% of the notes, and Asia 25%.

A source familiar with the transaction added that Pertamina’s offering saw strong follow-up buying in the secondary market from Asian investors who didn’t manage to get a share of the issuance. The notes traded up, to between 100.9 and 101, according to Bloomberg data.

Asset and fund managers bought 75% of the paper, followed by insurers and fund managers with 17%, financial institutions 5%, private banks 2% and sovereign wealth funds 1%, according to a term sheet.

The US dollar notes are issued under Pertamina’s $10 billion global medium-term note programme, and will be used for the company’s capital expenditure, acquisitions and general corporate purposes.

Barclays, Citi and HSBC were the joint bookrunners of Pertamina’s transaction.

¬ Haymarket Media Limited. All rights reserved.
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