Trafigura puts Europe first in $600m perpetual bond sale

The unrated group decides to tap European investors first before coming to Asia as it raises fresh capital from a perpetual bond.

With sentiment clouded by a potential rate hike in the US and volatility in the crude oil market, commodities trader Trafigura took a smart route — launching its latest bond offering in Europe first before tapping Asian demand.

The Singapore- and Switzerland-headquartered commodities trading house returned to the international bond markets on Tuesday, raising $600 million through a non-callable five-year perpetual bond sale.

The unrated deal was well received by both European and Asian investors, drumming up as much as $2.8 billion of orders before the release of final price guidance, according to two syndicate bankers running the deal.

“The company decided to launch the bond offering in European time zone because they see a significant demand for commodities paper in the region,” the banker said. “Before taking orders from Asia, the group had achieved $1.2 billion of demand from Europe.”

“From an execution point of view, it was quite smart and clever,” the banker added.

Another banker said the deal was driven by private-banking investors and European institutional funds, which are more receptive to riskier bonds that pay higher coupons.

“There is a general consensus among investors that commodities prices have stabilised,” the second source said.

Syndicate bankers initially pitched the Reg S deal in the low 7% area on Monday afternoon, before giving out guidance in the 7.25% area. Final pricing of the subordinated perpetual bond was fixed at par to yield 6.875%, according to a term sheet seen by FinanceAsia.

The coupon is fixed for five years until March 2022. If the bond is not called by the issuer, the coupon will reset to the prevailing five-year US Treasury yield plus an initial spread of 464.7bp, and another 200bp step-up.

In case of challenging operating conditions, the coupons are cumulative and compounding, providing an additional layer of comfort to investors that the issuer would still be obliged to fulfill coupon payments.

In the secondary market, the perpetual bond was quoted at 99.425 on Wednesday morning during Asian hours, slightly lower than its reoffer price. A syndicate banker said he expected to see more trading in the bond once European investors kicked in.

The closest comparables were its outstanding $500 million 7.625% perpetual bond, which is callable in April 2018, and a 100bp step-up in April 2023. The bond was quoted on a yield of 5.232% on a yield-to-next-callable date basis.

Another valuation yardstick was Olam’s $500 million 5.35% perpetual bond, which was trading on a yield of 5.743%. The Olam perpetual debt is callable in July 2021 with a 200bp step-up.

“Fair value is somewhere in the 7% area, so the final pricing was pretty aggressive,” a Hong Kong-based investor said. “The credit fundamentals of the company are moderately aggressive, but less so than its major counterparts such as Olam and Noble.”

The company said there were close to 200 accounts in the trade, with 61% being allocated to Europe and 39% to Asia. It was the company's third bond sale after a $500 million perpetual bond in April 2013 and a S$200 million ($141.6 million) perpetual bond sale in February 2014.

The bookrunners for the new deal were ANZ, Bank of America Merrill Lynch, DBS and Deutsche Bank.

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