Petrobras floods market with $6 billion of new paper; Hyundai, Energisa, Banco Safra price

By Christine Van Dusen

Atlanta, Jan. 20 - Volumes thinned and recent new issues, which had been well received in previous weeks, struggled to gain solid footing on Thursday as investors dealt with depleting cash and attempted to make room for the $6 billion of new paper from Brazil-based Petroleo Brasileiro SA.

Petrobras' three-tranche issue dwarfed the day's other new deals, including notes from South Korea's Hyundai Capital Services Inc., Brazil's Energisa SA and Brazil's Banco Safra SA. And less attention was paid to the deals that moved closer to market, including notes from Russia's OAO TMK, China's CNOOC and Nigeria.

"Petrobras is humongous," a Connecticut-based trader said. "It's got people a little bit spooked. It's a pretty big number, and it's giving buyside clients reason to pause and not rush in and buy deals. The wall of cash is barely knee-high now."

With Petrobras' deal, investors were seen switching out of Brazil sovereign bonds and similar credits to make room for the new notes.

"With a deal of this size, they have to shift stuff around, as opposed to buying it outright with cash," the trader said. "So we're seeing weakness in Brazil, Mexico and Pemex (Petroleos Mexicanos SAB de CV)."

Said a London-based trader: "It certainly feels like there's some indigestion out there."

Petrobras does big deal

Petrobras' $6 billion deal included $2.5 billion 3 7/8% notes due Jan. 27, 2016 that priced at 99.663 to yield 3.95%, or Treasuries plus 190 basis points.

In the second tranche, $2.5 billion 5 3/8% notes due Jan. 27, 2021 priced at 99.801 to yield 5.401%, or Treasuries plus 195 bps.

And the third tranche totaled $1 billion 6¾% notes due Jan. 27, 2041 that came to market at 99.288 to yield 6.806%, or Treasuries plus 220 bps.

BTG Pactual, Citigroup, HSBC, Itau, JPMorgan and Santander were the bookrunners for the Securities and Exchange Commission-registered notes. Proceeds will be used for general corporate purposes and capital expenditures.

"That should be very active," the Connecticut trader said.

The deal followed Wednesday's pricing by Kazakhstan-based lender JSC Halyk Bank of $500 million 7¼% notes due Jan. 28, 2021 at 98.263 to yield 7½%, according to a company announcement.

Citigroup, Deutsche Bank and Halyk Finance were the bookrunners for the Rule 144A and Regulation S transaction.

Hyundai, others price notes

South Korea-based financing company Hyundai Capital Services sold $700 million 4 3/8% notes due July 27, 2016 at 99.407 to yield Treasuries plus 245 bps, a market source said.

ING, JPMorgan, Morgan Stanley, RBS and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

Brazil's Banco Safra priced its $500 million 6¾% notes due Jan. 27, 2021 at 99.663 to yield Treasuries plus 335 bps, a market source said.

Bank of America Merrill Lynch, Banco Safra, JPMorgan and UBS were the bookrunners for the deal.

Proceeds will be used for general corporate purposes.

And Brazil-based electricity generator Energisa priced $200 million perpetual notes at par to yield 9½%, a market source said.

Bank of America Merrill Lynch, Morgan Stanley and Santander were the bookrunners for the notes, which were talked at a yield in the 9½% area.

The issuer is permitted to defer interest payments on the notes at any time, subject to a dividend stopper. Deferred interest amounts will accumulate and will bear interest of 1% higher than the rate of the notes.

The notes also include a change-of-control put at 101% or a 500 bps step-up if not called.

Proceeds will be used for general corporate purposes.

Recent issues lag

With Petrobras flooding the market with supply, some other recent deals had a tougher day. The $800 million 8.95% notes due 2018 that priced Wednesday at par from Belarus, for example, were down close to a point in the first day of trading.

"It's kind of a specialty credit," the Connecticut trader said. "People aren't that crazy about it. It's been only lukewarm."

The same was true for South Africa-based power utility Eskom Holdings, which on Wednesday sold $1.75 billion 5¾% notes due 2021 at 99.273 to yield 5.847%, or Treasuries plus 250 bps.

"That's trading only a quarter-point or half-point below, but there are very few buyers stepping in," he said. "It's had a hard time gaining firm footing all day."

Nigeria on tap

Though nearly blinded by Petrobras' heavy issuance, the market still kept an eye out for Nigeria's planned $500 million 10-year eurobond, which was talked at a yield in the 7% area and is expected to price Friday.

"That's coming cheap to Ghana, so we'll have to see how it trades," the Connecticut trader said. "I think there will be enough guys looking for diversity to buy that one."

Also on Thursday Russia-based welded pipe producer, supplier and distributor TMK set price talk for its planned $500 million issue of seven-year notes at the 7¾% area, a market source said.

Barclays Capital, Deutsche Bank and UBS are the bookrunners for the Regulation S deal.

Market sources were also watching Hong Kong-based oil and natural gas exploration and production company CNOOC Ltd., which is expected to price on Friday its offering of 10- and 30-year notes via Barclays Capital, BOC International, Bank of America Merrill Lynch, Goldman Sachs and JPMorgan.

The Rule 144A and Regulation S notes will be issued via subsidiary CNOOC Finance (2011), and proceeds will be used for general corporate purposes.

Middle East better bid

Meanwhile, issuance from the Middle East and Africa was at a standstill on Thursday.

"It remains quiet on the new issue side of things, despite the rumored bucket load of supply in the wings," the London-based trader said, pointing in particular to the upcoming $2 billion sukuk issue of notes from Dubai's Emaar Properties.

Overall, paper from Middle Eastern names seemed slightly better offered on Thursday morning, but there was no real selling pressure, the trader said.

"National Bank of Abu Dhabi and Abu Dhabi Islamic Bank are still well supported and a good 15 bps tighter over the week," he said.

Also standing out, he said, was Kuwait's Kipco. The company's 8 7/8% 2016 bonds were trading at 110.37 bid, 111.37 offered on Thursday.

"Kipco is a rock," he said. "It's very hard to source the 2016s, which are properly squeezed."

He was also keeping an eye on Dar Al-Arkan International Sukuk Co., which "remains heavy in the street," he said. "Sabic Capital, in contrast, is trading OK. And Banque Saudi Fransi remains just about the tightest dollar fixed bank in the region."

Prices a touch softer

In other trading from the Middle East, Banque Saudi Fransi's 4¼% notes due 2015 - which priced in March at 99.543 to yield Treasuries plus 196.3 bps - were at 105.00 bid, 105.50 offered on Thursday.

And Abu Dhabi National Energy Co.'s 5.62% 2012s were trading at 104.87 bid, 105.12 offered after finishing Wednesday at 105 bid, 105.15 offered. The corporate's 7¼% 2018s - which ended Wednesday at 112.43 bid, 112.93 offered - were seen Thursday at 112.25 bid, 112.50 offered.

Egypt's 5¾% 2020 bonds were at 103 bid, 103.75 offered on Thursday after trading at par on Wednesday.

"We've seen some severe repricing in Lebanon over the past 48 hours with bonds quoted a good 3 to 5 bps lower at the long end versus Monday as the political impasse remains," the London trader said. "Egypt, in contrast, is holding OK."

Politics, he said, are at the forefront for many of these credits.

"It's certainly something to bear in mind ahead of the new Nigeria 10-year notes," he said.

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