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Petrobras to sell local debt in wake of Vale deal, source says

By Guillermo Parra-Bernal

SAO PAULO, Feb 19 (Reuters) - Petróleo Brasileiro SA is considering the sale of about 3 billion reais ($1.26 billion) in local notes to fund infrastructure projects, helping the state-controlled oil company tap investors beyond its traditional base, a source with direct knowledge of the situation said.

The Rio de Janeiro-based company, which has not sold senior debt in the domestic market in 12 years, is discussing with banks how to place an offering of so-called infrastructure debentures soon, the source, who requested anonymity because the plan is in the works, said earlier this week. The inflation-linked notes would be split into different maturities, the source added.

Petrobras, as the company is known, wants to follow in the footsteps of Vale SA, which last month raised 1 billion reais in a similar transaction. Robust demand for the notes allowed Vale, the world's largest iron ore producer, to borrow at costs below those available to Brazil's federal government.

The domestic debt offering could also help Petrobras buy time ahead of a planned comeback to international debt markets. According to the source, the company wants to clinch the sale of dollar-denominated bonds during the first half and extend a successful offering of securities denominated in the euro and British pound in the second half.

A Petrobras deal could increase the infrastructure debenture market's visibility, as companies and the government seek funds for much-needed road, port and airport projects. Sales of the notes could reach 9.5 billion reais this year, more than twice the 4.5 billion reais sold in 2013, Luciano Coutinho, president of state development bank BNDES, said last year.

If successful, Petrobras' sale would be the biggest single offering of Brazilian infrastructure debentures since the market took off a couple of years ago. A Petrobras spokesman did not have an immediate comment.


Petrobras was named the world's most indebted company in a report last year by Bank of America Merrill Lynch. The company has increased the size of its annual bond sales in U.S. dollars each year since at least 2009, driving borrowing costs higher.

Petrobras in May sold $11 billion of dollar bonds in the largest-ever bond offering by a Latin American company. The same source told Reuters recently that the company could place between $10 billion and $13 billion worth of bonds in international markets in 2014.

The company faces financing needs of nearly $18 billion next year.

Both Petrobras and Vale, which is also based in Rio de Janeiro, need to raise money for programmed investments and other corporate purposes this year earlier than usual to mitigate fund-raising risk ahead of a presidential election in Brazil and the U.S. Federal Reserve's expected wind-down of monetary stimulus.

Vale wants to sell 10-year dollar bonds in global markets before June.

According to the source, the success of Vale's infrastructure debenture offering paved the way for Petrobras to try the relatively new market, which in less than two years of existence has struggled to generate a significant dealflow but now is showing signs of finally taking off.

Vale sold 550 million reais in seven-year notes and 150 million reais in 10-year notes, both inflation-linked securities, with yields about 0.15 percentage points and 0.10 percentage points below the normal cost of borrowing for the Brazilian government in comparable maturities.

The company also sold 12-year and 15-year notes in the offering.

Investors placed bids worth about 3.5 billion reais for Vale's infrastructure debentures, 3.5 times the amount finally sold. About 3.2 billion reais worth of bids came from individual investors.