Petron Corp issues $469 million peso eurobond

The energy company becomes the first Philippine corporate issuer to sell peso-denominated bonds to international investors following the success of the global peso sovereign.

Philippine energy giant Petron Corporation priced this year’s second international peso bond late on Wednesday -- a Ps20 billion ($469 million) seven-year bond with a 7% semi-annual coupon and yield. The deal was issued and reoffered at par and comes after the Philippine sovereign's successful Ps44.1 billion global peso bond in September. 

The Reg-S peso eurobonds, which are denominated in Philippine pesos but settled in US dollars, work better for the issuer than conventional dollar bonds since the swap market in pesos is fairly illiquid. And a domestic peso issue would be subject to 20% withholding tax, which makes them unfavourable for international investors.

In addition, Ps20 billion is a considerable size for a straight domestic issue -- peso bonds typically are no larger than Ps10 billion -- so a fundraising of this size was best achieved offshore.

And, with the success of the sovereign, any uncertainty about the structure was quashed well in advance.

“[The company] was intent on diversifying its investor base,” said a source, “and doing so in a cost effective manner.”

The key difference between the global peso bonds issued by the sovereign and the euro peso bonds issued by Petron is that the former were open for sale to onshore US investors.

As was the case with the sovereign, there was no comparable credit to benchmark the price against. Instead, the pricing was referenced against the exchange rates, which for this deal was set at Ps42.603 to the US dollar.

“If you look at the seven-year local Philippine Treasury paper, it was yielding 5.375% give or take, so basically [at 7% this deal offers] a spread of 172bp over the domestic benchmark," explained one banker.

The final demand was Ps49 billion ($1.15 billion) from 90 investors. Regional distribution saw 24% of the bonds sold into Europe, 28% into the Philippines and the remaining 48% into the rest of Asia.

Typically, Philippine corporate issuers rely on a strong local investor base to help drive the bonds over the line. However, in this instance it was the offshore investors who anchored the deal.

“If you look at the domestic investors, in particular banks, they look at group exposure on a consolidated basis. And a number of these banks has a fairly large exposure to [Petron] already and therefore their ability to add on is somewhat finite,” said one banker familiar with the deal.

“[Petron] is keeping room for bilateral loans [so] it didn’t want to target domestic banks with more bonds. They’d rather keep that room open for loans,” said another banker.

By investor type, fund managers received 49% of allocation, banks and trust funds together were allocated 33% and private banks took the remaining 18%.

In the secondary market, the bonds were bid at a cash price of 101.6 at the end of Thursday trading in Hong Kong.

The Reg-S notes will mature on November 10, 2017 and have not been rated. Credit Suisse, Deutsche bank, HSBC and Standard Chartered Bank were joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.
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