KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) yesterday priced a US$5 billion (RM18.4 billion) multi-tranche offering, comprising a US$1.25 billion five-year sukuk tranche, and US$750 million seven-year, US$1.5 billion 10-year and US$1.5 billion 30-year conventional notes. 

The five-year sukuk was priced 110 basis points (bps) over the five-year treasury to yield 2.707%, the seven-year conventional notes were priced 130bps over the seven-year treasury to yield 3.223%, the 10-year conventional notes were priced 150bps over the 10-year treasury to yield 3.605%, and the 30-year conventional notes were priced 190bps over the old 30-year treasury to yield 4.576%.

The conventional notes and sukuk are expected to be assigned the rating of A1 by Moody’s Investors Services and A- by Standard & Poor’s.  

Bank of America Merrill Lynch, CIMB Investment Bank Bhd, Citigroup, JP Morgan and Morgan Stanley acted as active joint bookrunners and lead managers.  

“The proceeds will be used by Petronas, or its subsidiaries and associated companies, for general corporate purposes — any use of proceeds from the sukuk will be syariah-compliant,” said Citigroup in a statement yesterday.

This is the first offering from Petronas since its US$4.5 billion dual-tranche offering in August 2009, and is the largest G3 issuance from Southeast Asia. 

G3 bonds are those issued in US dollars, yen and euros. 

Meanwhile, Moody’s said Petronas’ financial metrics are still strong, due to higher profitability stemming from a lower cost of production and its conservative financial profile. Petronas is rated A1 Stable by the rating agency. 

“We expect the company’s credit metrics to remain well within the parameters of its A1 ratings owing to its net cash position and low leverage. Even with the expected decline in earnings this year, Petronas will still map to an Aa3 rating on Moody’s methodology for integrated oil and gas companies,” it said in a note yesterday.

Moody’s expects the company’s earnings before interest, taxes, depreciation and amortisation to fall by around 30% in 2015, before rebounding in 2016 on an improvement in oil prices. 

“We expect Petronas’ net borrowings to increase by about RM35 billion to RM40 billion annually over the next two years as it funds its cash flow shortfall with a mix of cash and fresh borrowings,” it said.

This article first appeared in The Edge Financial Daily, on March 13, 2015.