Petronas starts roadshows

Roadshows begin in Hong Kong today (Monday) for a $1.5 billion bond offering.

Malaysian oil company, Petroliam Nasional Bhd. (Petronas) launches roadshows today for the sale of global bonds denominated in US dollar and euros to raise $1 billion and Eu500 million respectively. After Hong Kong, presentations move to Singapore on Tuesday, then Frankfurt on Wednesday, London Thursday and Boston Friday. Presentations will continue in New York the following Monday and Tuesday, with pricing thereafter.

Morgan Stanley is overall global co-ordinator and will lead manage the $1 billion bond issue, which will carry a maturity of 10 years, in tandem with Salomon Smith Barney. The Eu500m bonds will have a seven-year maturity with Barclays, HSBC and also Morgan Stanley managing the sale.

While bankers close to the deal declined to provide indicative pricing, observers say that it will be interesting to see how close the oil giant can price to the sovereign curve given that it is now rated one notch higher by Moody's. Presently, the Petronas 2015 bond is trading at 190bp/180bp over, while the Malaysian sovereign 2011 issue is at 142bp over. Fund managers are hoping for up to 30bp over the sovereign, although observers say that 10bp is more likely.

Apart from the sovereign bonds, other issues that act as pricing indicators include Korea Electric Power Corporation's (KEPCO) 7.75% 2013, LG-Caltex Oil's 7.75% 2011 and CNOOC's 6.38% 2012 which currently trade at 150bp, 163bp and 134bp respectively. Pricing of Petronas' bonds will also be influenced by the distribution of the deal. Although Asian bids will be very strong, the onshore bid for Malaysian issuers has never been as strong as that for Korean or Chinese issuers.

Both CNOOC (Baa2/BBB) and LG-Caltex (Baa2/BBB-), which are rated one-notch below Petronas (Baa1/BBB), have been beneficiaries of successful bond issues within the past year. In March this year, CNOOC successfully raised US$500 million at a spread of 163bp over Treasuries.

Last July, LG-Caltex raised US$300 million through the sale of 7.75% 10-year bonds priced at a spread of 280bp over Treasuries. Petronas is expected to receive a rating upgrade following announcements made by rating agencies that Malaysia's ratings are headed for an upgrade.

Contrary to earlier inaccurate reports about a $3.5 billion new issue, which caused spreads to widen, Petronas is aiming for a $1 billion dollar issue and Eu500 million in eurobonds. Market participants say this does seem more achievable and could be increased a little to satisfy demand.

Rumours about a $3.5 billion bond issue fell flat as the size was considered too big. Selling pressure from US and European accounts and potential new issues in the pipeline have also caused Asian spreads to widen more over the past week. Some analysts have compared the present situation to nearly a year ago when the bond markets were concerned with the wave of new issues flooding the market and particularly a $4 billion plus issue from PCCW.

Some market participants also feel that the euro-denominated bond issue from Petronas is unnecessary and are not clear what the company is trying to achieve by tapping the sector. This will mark its debut in the euro bond market and pricing will be benchmarked against the Eu650 million sovereign euro bond due 2005 that currently trades at 55bp over euribor, equivalent to about 80bp over Treasuries.

The sovereign euro bond issue due 2005 was priced at launch in November 2000 to yield 102bp over the mid euribor swap rate or 215bp over Treasuries. In the dollar market, Petronas has a 7.13% issue one-year longer currently trading about 12bp wider than the sovereign at 92bp over Treasuries.

The new Petronas bond issue is aimed at refinancing debt and funding overseas acquisitions. Earlier last month, Petronas' acquisition plans in Indonesia received a setback when it was pipped to the post by Petrochina, which bought $216 million. Petronas is aiming to get nearly half of its revenues from overseas operations as it has seen Malaysian oil and gas reserves dip recently. It is reportedly in discussions with Royal Dutch Shell and Petrochina to acquire a stake in a $5 billion gas pipeline from Western China to Shanghai.

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