PTT Exploration & Production sold a $1 billion subordinated perpetual bond on Wednesday, overcoming political uncertainty that has plagued Thailand since it fell under martial law on May 20.
The 144A/Reg S-registered bond — the first dollar perpetual offering from a Thai corporate since 2006 — was able to achieve aggressive pricing due to fact that the credit is Thailand’s biggest publicly listed oil and natural gas explorer, and the fact that the structure of the transaction was investor-friendly.
“PTTEP operates in a defensive industry where it’s a core part of the economy and there’s always going to be demand for its products,” a source close to the deal told FinanceAsia. “Political turmoil in Thailand would normally affect the banking or retail sector but not the oil and gas industry.”
PTTEP was able to reduce the pricing of its offering from 5.25% to price at 4.875%, indicating a tightening of 37.5bp — one of the largest seen in the Asian debt capital markets this year — a source close to the transaction said.
Political tensions have been running high in Thailand, which could have adversely affected the issuance, but syndicate bankers said the country’s spreads have held out relatively well.
Five-year credit default swaps protecting Thailand’s government debt against non-payment rose 3bp to 133bp on May 22, two days after martial law was imposed, but have since dropped to 113bp prior to the announcement of PTTEP’s transaction — an indication that political tensions are easing.
Supporters and opponents of the country's government have staged mass protests in recent months and, in early May, a top court removed Prime Minister Yingluck Shinawatra from office, along with nine cabinet ministers after finding them guilty of abuse of power.
Thailand’s beleaguered government endorsed the army’s sudden decision to impose martial law on May 20, saying military intervention could help bring forward proposed elections and reforms after six months of political impasse.
The last Thai issuer of perpetual notes was Krung Thai Bank, which raised $220 million selling 7.378% debt in October 2006, according to data compiled by Bloomberg.
Investor-friendly structure
Structurally, the bond is appealing, a source close to the deal said. Not only is the offering callable in year five and 10, and at every distribution payment date thereafter, it also comes with step-ups.
From year five to 10, the note resets at five-year US Treasuries plus an initial spread of 317.5bp; from year 10 to 25 onwards, it resets to six-month dollar Libor plus an initial spread of mid-swaps and an additional 25bp; from year 25 onwards, it has the same as the resets from year 10 to 25 but with an additional 75bp added to it, according to a term sheet seen by FinanceAsia.
“This structure is designed in a way that you get intermediate credit from rating agencies,” the source said. “This is one way to classify it as an institutional offering as we wanted institutions to buy this, and there were no private banking rebates offered.”
PTTEP’s bond receives 100% equity credit from IFRS and 50% from both Moody’s and Standard & Poor’s, though the latter rating agency only offers it for the first five years.
Equity credit is the classification of a security that provides an indication of the extent to which a credit rating agency treats the security as equity rather than debt when evaluating the qualitative aspects of an issuer’s corporate credit rating.
Institutional investors
PTTEP’s bond attracted an order book of $5.6 billion from more than 300 accounts, of which fund managers and insurers subscribed to the majority (79%) of the paper. Private banks accounted for 10%, financial institutions 6% and agency, corporates and others 5%, according to a source familiar with the matter.
Asian investors were allocated 45% of the paper, followed by the US with 29% and Europe with 26%.
The closest comparables for PTTEP’s offering was China state-owned chemical company Sinochem’s $600 million perpetual bond issued last April. Before announcement, the corporate’s paper was trading at a yield of about 4.4%, the source added.
In the secondary market, PTTEP’s new offering was trading at a bid of 101, according to Bloomberg data.
Bank of America Merrill Lynch, Credit Suisse, HSBC and JPMorgan were the joint bookrunners of the transaction.
