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Petronas’ first bond issuance in four years is expected to see significant investor demand, potentially lowering borrowing costs for the state-owned oil and gas company, according to CreditSights, a research arm of Fitch.
Key Points:
Attractive Pricing Expected: The new senior unsecured bonds, which will mature in five, 10, and 30 years, were initially marketed at 1.20%, 1.30%, and 1.50% above US Treasury yields. However, CreditSights anticipates the final pricing will be around 37.5 basis points tighter than the initial price guidance, reducing the overall borrowing cost.
Strong Investor Interest: The pricing tightening indicates strong demand for Petronas’ bonds, as investors show confidence in the company's financial stability. This would lead to further spread tightening in the secondary market, with additional narrowing expected for the five-year, 10-year, and 30-year bonds.
Capital Raise Plan: Petronas aims to raise up to US$3 billion (RM13.27 billion) through this bond issuance, which will be split into three tranches. This marks the company’s first major bond issuance since 2021, when it raised US$3 billion through a dual-tranche senior bond offering.
Credit Outlook: CreditSights has maintained a “market perform” recommendation on Petronas, noting that the company's shorter-dated bonds (2026-2032 maturities) have room for further tightening compared to its regional peers, such as Indonesia's PT Pertamina.
Positive Cash Flow: Despite increasing capital expenditures and ongoing dividend payouts, CreditSights expects Petronas to continue generating positive free cash flow, supported by its strong credit profile, large operations, and healthy cash reserves.
Operational Developments: The near-resolution of the Petronas-Sarawak dispute over gas distribution rights is seen as a favorable development. Petronas retains its liquefied natural gas (LNG) operations in Sarawak, and the dispute is not expected to cause significant earnings impact, with projections for a modest decline of 1-11%.
Overall, Petronas’ bond issuance is likely to see strong demand, further enhancing its ability to raise funds at more favorable terms in the future.
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