Petronas prepares US$7b bond as borrowing costs soar on oil

[KUALA LUMPUR] Malaysia's Petroliam Nasional is offering the second-largest dollar bond from Asia as the state- owned oil firm's borrowing costs soar to the highest in a year.

Petronas is marketing notes in the US currency with four different maturities and expected to reach US$7 billion, according to people familiar with the matter. The five-year portion is being offered at about 135 basis points more than Treasuries, similar to what the issuer currently pays on its 2019 dollar- denominated bonds. The yield on those notes climbed to 2.93 per cent on March 6, the highest since February last year.

Petronas is issuing into Asia's worst dollar-bond market this year amid a global slump in oil prices and debt concerns surrounding a Malaysia-backed investment firm. Notes from the oil-exporting nation are the only of the 16 Asian countries tracked by JPMorgan Chase & Co to report negative returns this year, losing 2.3 per cent. The cost of insuring Malaysian sovereign debt reached a 16-month high in January after reports of a missed bond payment by 1Malaysia Development Bhd.

Petronas "will be a good guide of investor sentiment towards both sovereign and 1MDB concerns and the recent fall in oil prices," said Nish Popat, portfolio manager for Neuberger Berman Group LLC in the Hague.

The energy company is offering five-year Islamic debt with indications of yield at 135 basis points over Treasuries, said people familiar with the matter. It's also marketing seven-year conventional dollar bonds at a premium around 150 basis points, 10-year notes at 175 and 30-year securities at 220.

Alibaba Sale Petronas reported a loss of 9.9 billion ringgit (US$2.7 billion) in the three months through Dec 31 following crude's plunge, compared with a 9.6 billion ringgit profit a year ago. Brent futures are down 42 per cent in the last six months.

Alibaba Group Holding, the online retailer founded by billionaire Jack Ma, sold $8 billion of notes in November, the biggest ever dollar-note sale out of Asia, after raising a record US$25 billion in an initial public offering in the US in September. Petronas's greenback offering may become the energy company's biggest such sale to date.

The last time Petronas sold US currency notes was in August 2009, when it issued US$4.5 billion of bonds. It paid a coupon of 5.25 percent, or a premium of 162.5 basis points over Treasuries at the time, on 10-year dollar debt. The securities currently pay a yield 136 basis points above Treasuries, more than 50 basis points higher than six months ago, prices compiled by Bloomberg show.

Petronas has US$625 million of US currency notes maturing in August. The company's only dollar sukuk, sold in 2009 at a coupon of 4.25 per cent, matured last year.

The oil producer, which is rated the fifth-highest investment grade of A1 by Moody's Investors Service, hired Bank of America Corp., CIMB Group Holdings Bhd., Citigroup, JPMorgan Chase & Co and Morgan Stanley to manage the sale, according to a March 4 filing.

"The deal does not offer huge value to investors at initial guidance especially considering they want to do a large transaction," said Diwakar Vijayvergia, a credit analyst at Royal Bank of Scotland in Singapore. "It will be interesting to see if the market can take down such a big deal, but there hasn't been much issuance recently so there may be enough cash to take it."

BLOOMBERG