Petrobras Prices $8.5B Notes - Analyst Blog

Brazilian state-run energy giant, Petroleo Brasileiro SA or Petrobras PBR announced the pricing of its dollar denominated notes. The offering includes fixed rate and floating rate notes that would fetch $8.5 billion for the company.

Petrobras has put on offer four sets of fixed rate notes due in 3, 6, 10 and 30 years respectively. The $1.6 billion 3-year notes, priced at 99.957%, offer an interest of 3.25%. The $1.5 billion 6-year notes, priced at 99.743%, offer an interest of 4.875%. The $2.5 billion 10-year notes, priced at 99.772%, offer an interest of 6.25%, whereas the $1.0 billion 30-year notes, priced at 99.166%, offer an interest of 7.25%.

Petrobras has also put on table two sets of floating rate notes due in 3 and 6 years. The $1.4 billion 3-year notes offer a coupon payment of 236 basis points (bps) above the 3-month USD LIBOR rate whereas the $500 million 6-year notes offer coupon payment of 288 bps above the 3-month USD LIBOR rate.

This offering is expected to close on Mar 17. Petrobras intends to use the proceeds to support its $220.6 billion 2014–18 Business and Management Plan (BMP). According to this BMP, Petrobras will generate $60.5 billion of debt during the above-mentioned five-year period.

Petrobras started the year with a similar offering. In January, the company had raised about $5.17 billion though euro and pound denominated notes.

Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The long-term outlook on the company looks promising with a strong pipeline of development projects and impressive exploration successes. However, the lavish five-year investment program could substantially increase the company's leverage and deteriorate its credit metrics.

Headquartered in Rio de Janeiro, Petrobras currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector such as Range Resources Corporation RRC, Patterson-UTI Energy Inc. PTEN and Helmerich & Payne, Inc. HP. All these stocks currently sport a Zacks Rank #1 (Strong Buy).