September 2, 2014
High demand for YPF bond
Around US$4B in interest for 10-year paper
NEW YORK — Demand for state-run oil company YPF’s new US$1 billion 2024 bond, which is expected to unveil its interest rate today at around nine percent, is strong, in excess of US$4 billion, sources close to the deal said yesterday.
YPF has hired investment banks HSBC, Itau and Morgan Stanley to gather interest from potential investors in London and New York.
Guidance on the bond, expected to be rated Caa1 by Moody’s and B- by Fitch, has been tightened to the nine percent area after initial price thoughts were sounded to investors in the low-to-mid nine percent range.
The high degree of interest in the bond is expected to squeeze pricing even further.
Some said that YPF could even try to price the new bond flat to its existing 8.875 percent 2018 issue.
“Argentina has been rallying, so investors who are underweight have been hurt,” said one senior syndicate official referring to strong demand for the deal.
On Friday, YPF announced it would formally launch a 10-year global bond for US$500 million, expandable to US$1 billion, in what will be its second large operation in foreign markets in months.
In December, YPF placed US$500 million in an international bond with a fixed rate of 8.875 percent, with a maturity date of five years without any guarantees. The bond saw a demand for US$2 billion.
YPF, which has been under the government’s control since President Cristina Fernández de Kirchner ordered 51 percent of the company be nationalized in 2012, is expected to use the proceeds to finance the country’s shale oil and gas formation called Vaca Muerta, which is mostly located in the province of Neuquén.
A US Department of Energy report has shown that Argentina has more natural gas trapped in shale rock than all of Europe, and the 21.917-trillion-cubic-metre bounty could transform the outlook for Western Hemisphere supply.
“Even with the shale reserves, I’d need a lot more yield,” said one trader. “But I have a lot of clients asking about it, because if you want to get in (on YPF) it’s the only opportunity to do so.”
Herald with Reuters