Petrobras: it’s a record, but it proves what we already knew

For all its record-breaking size, Petrobras’s $11bn bond has set surprisingly few hearts racing. Bankers hardly seem shocked by the scale of the deal. It simply confirms what many people already suspected EM was capable of.

  • 14 May 2013
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After raising $11bn in just a few hours on Monday — a deal size that is equal to the GDP of the Bahamas — bankers who worked on the Petrobras six-tranche bond that smashed the record for largest ever EM bond probably feel they have earned a few days on a beach on a tropical island.

They wouldn’t be wrong — the Brazilian oil company’s bond is an extraordinary achievement. Yes, oil is about as popular a sector as you could find, but the company is hardly having an easy time of it (check out its first quarter numbers). And the sheer size of the issue is doubly impressive given a clutch of rating agency warnings about the borrower’s increased debt and leverage.

But perhaps the most notable thing is that bankers are, for once, struggling to draw any strong conclusions beyond “well, that’s a big deal”. Emerging market bonds have come so far in recent years that they have to try a lot harder to impress.

Only last year Petrobras caught the eye with a $7bn trade. But with $230bn to raise before 2017, who’s to say it won’t go even bigger than $11bn next year?

All of which means that the deal does not hail a new era for emerging market bonds — after all, few companies have funding needs like Petrobras. But it does demonstrate what many have thought for years: the top companies in the emerging markets are just as attractive as the best in the rest of the world.

Petrobras’s execution was highly sophisticated: it bided its time, waited for the Brazilian sovereign to test the waters, and then pounced in spectacular fashion. All the tranches tightened as the book came in at a staggering $43bn, only just shy of the $50bn Apple attracted earlier in May.

With six tranches, investors were well catered for. Those comfortable with rates could snap up a 30 year tranche. Those more fearful had two short term FRNs to choose from. Those struggling to make up their minds could simply play both strategies.

So in one fell swoop, and after a quiet first quarter that saw LatAm volumes drop while most others rocketed, the region’s supply is back above 2012’s year-to-date volumes.

But the Petrobras bond had been flagged for weeks and there had been no panic about the low volumes. The DCM community calmly insisted that, with the number of deals increasing at the same time that volumes fell, LatAm was showing its maturity.

To judge by the sanguine reaction to the Petrobras jumbo, that judgement looks to have been spot on. EM is a stable asset class capable of mind-boggling numbers. But we already knew that, right?

  • 14 May 2013

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 2,007 6 16.61
2 Goldman Sachs 1,798 4 14.88
3 BNP Paribas 1,434 4 11.87
4 Barclays 1,097 2 9.08
5 Morgan Stanley 1,094 2 9.06

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 20,542.69 67 10.85%
2 JPMorgan 18,820.53 50 9.94%
3 Bank of America Merrill Lynch 17,976.22 56 9.49%
4 Wells Fargo Securities 16,568.24 48 8.75%
5 Barclays 13,499.53 45 7.13%