Petronas raises RM26b from bond market

The proceeds will be for refinancing, capital expenditures, working capital and general corporate purposes


PETROLIAM Nasional Bhd (Petronas) successfully priced a US$6 billion (RM26.04 billion) multi-tranche senior bond offering, marking its return to the international US dollar bond markets since early 2015.

The Petronas issue comprised a US$2.25 billion 10-year tranche, US$2.75 billion 30-year and US$1 billion raised via 40-year conventional notes.

The 10-year conventional notes were priced 290 basis points (bps) over the 10-year treasury to yield 3.65%, the 30-year conventional notes were priced to yield 4.55% and the 40-year conventional notes were priced to yield 4.8%.

“There were robust demands for the bonds with the orderbooks reaching US$37 billion at the time of pricing, which was one of the largest orderbooks by an Asian issuer ever,” the national oil company stated yesterday.

The 6.2 times oversubscription ratio reflects the market’s confidence in Petronas’ credit strength which was recently affirmed at A2 by Moody’s Investors Service Inc and A- by Standard & Poor’s Financial Services LLC, both with stable outlooks.

The issuance represents Petronas’ return to the international US dollar bond markets since its US$5 billion multi-tranche offering in March 2015.

It is part of the ongoing prudent capital management efforts which also effectively extend its debt maturity profile, Petronas said.

The proceeds will be used by Petronas or its subsidiaries and associated companies for refinancing, capital expenditures, working capital and general corporate purposes.

The offering comes amid crude oil prices halving in the past two months due to bearish demand-supply fundamentals triggered by the impact of the Covid-19 pandemic on global economic activity.

BofA Securities Inc and Citigroup Inc acted as joint global coordinators and joint bookrunners, together with HSBC, Malayan Banking Bhd and Japan’s Mitsubishi UFJ Financial Group Inc as joint bookrunners.

Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said the fact the offering was oversubscribed by more than six times indicates the level of investors’ confidence in Petronas’ overall financial profile.

“Having a well-integrated oil and gas operation, Petronas has convinced investors its fundamentals remain intact at this juncture despite the sharp volatility in global oil prices,” he told The Malaysian Reserve.

Fitch Ratings Inc has revised the outlook on Malaysia-based Petronas Issuer Default Ratings (IDRs) to ‘Negative’ from ‘Stable’ and affirmed the Long-Term Foreign-and Local-Currency IDRs at ‘A-‘.

Fitch has also affirmed its Short- Term Foreign-Currency IDR at ‘F1’. At the same time, Fitch has also affirmed Petronas’ foreign-currency senior unsecured rating and the rating on debt issued by subsidiary Petronas Capital Ltd and guaranteed by Petronas at ‘A-‘.

Petronas accounted for more than 15% of the Malaysian government’s revenue over the last five years. The company held RM123 billion in cash with debts of RM55 billion as at end-2019, Fitch noted.

“We expect Petronas’ dividend payment to fall in 2021 following weak earnings due to low oil prices and declining volumes on the disruptions from the coronavirus. The government has allowed Petronas to cut dividends to maintain its financial profile,” said Fitch.

Petronas reduced dividends to RM16 billion a year in 2016 and 2017 on weaker earnings from lower oil prices.

Petronas estimates dividends will rise to be between RM22 billion and RM25 billion over 2022- 2023, subject to crude oil prices and investments.