Petron raised $500 million from the sale of a perpetual bond on Wednesday night, proving that there is plenty of liquidity at the right price. The Philippines oil refiner has not borrowed in the dollar markets before and is unrated, yet investors still placed $2.75 billion of orders for the chance to own its subordinated debt.
Part of the attraction is that Petron is 68.3%-owned by San Miguel, which is a well-known name among Asian private bank clients. It also appeared to make some concessions to investors, who have complained that recent deals were skewed too heavily toward the borrowers’ interests.
Petron is paying a coupon of 7.5% and the notes feature a 250bp step-up if they are not called at five-and-a-half years, with further step-ups every five years thereafter. There will also be rate resets every five years to protect investors against the risk that the US Federal Reserve starts raising interest rates at some point in the future.
These terms compare favourably alongside Reliance Industries’ perpetual launched the previous night, which offered no step-up at all — a fixed-for-life deal that Reliance has very little reason to call, meaning that borrowers could be earning the meagre 6% coupon for a long time.
The deal was marketed to investors in Hong Kong, Singapore and London, with roadshows wrapping up on Tuesday. It was initially pitched with an expected issue size of $400 million to $500 million, and there was a fair bit of work to do in terms of price discovery, given that Petron has no existing issuance in the market and the structure of this deal differs from some of the other existing issues.
ICTSI, another Philippines borrower, has an outstanding deal yielding around 8.375%, but the issue size is smaller and it is not very liquid. Reliance, meanwhile, was trading at 5.875% — but they are senior bonds from a rated issuer with a track record in the dollar market.
Taking all this into account, initial price guidance was in the 7.5% area, which clearly offered enough juice to attract plenty of yield-hungry private bank clients. In all, 76% of the deal went to these rich individuals, who also benefited from a $0.30 private banking rebate.
The rest of the deal went to funds (11%) and banks and trusts (13%). By region, 19% went to onshore Philippines investors, while 64% went to the rest of Asia and 17% to Europe. There were around 100 investors in total.
The bonds priced at par and the first call date is August 6, 2018.
In secondary trading, the bonds came under pressure yesterday morning but were back slightly above par by the afternoon.
Petron is raising the money in part to fund the continued upgrade of its refinery in Bataan. The refinery can now process 180,000 barrels a day of crude oil into premium fuel products and petrochemical feedstock. In 2011, Petron celebrated the refinery's 50th anniversary with the launch of an expansion project that will radically improve its operational efficiency.
Bataan is one of only two oil refineries in the Philippines — the other is Pilipinas Shell in Batangas.
San Miguel bought Petron from the Ashmore Group in 2009 and recently offered the Philippines government the opportunity to buy back the refinery as part of its commitment to lowering fuel prices in the country. The government demurred.
Deutsche Bank, HSBC, Standard Chartered and UBS were bookrunners.
