March 12, 2015 / 10:27 AM / 3 years ago

UPDATE 1-Repsol plans debut hybrid bond of up to 5bn

(Adds context and investor comments)

By Laura Benitez

LONDON, March 12 (IFR) - Spanish oil major Repsol is planning to sell a debut hybrid bond that will test the depth of European investor appetite for subordinated debt in a volatile sector.

Repsol said at the end of 2014 that it would issue up to 5bn in hybrids to fund the US$12.9bn acquisition of Talisman, which is due to close in mid-2015. Investor meetings for the deal will start next week on Monday, March 16.

Repsol had recently hinted at issuing the deal in stages to achieve its desired 5bn size, said one investor who took part in a recent update call with the company.

“It was in Repsol’s best interests to roadshow this deal and get its story over to investors. That way they could not only cut funding costs but also have a good chance of issuing the full 5bn in one go,” he said.

One debt official involved in Total’s 5bn hybrid last month questioned whether Repsol will be able to issue its desired 5bn size in one outing given it has lower ratings than Total.

The French oil major is Aa1/AA-, several notches higher than Repsol’s Baa2/BBB-/BBB (Moody‘s/S&P/Fitch), meaning any hybrid offering from the Spanish major will be sub-investment grade.

Total attracted 20bn of orders for its 5bn deal while locking in record-low coupons for a hybrid bond.

Hybrids receive 50% equity credit at the major ratings agencies, and were usually the preserve of companies needing to defend their balance sheets without tapping the equity markets.

The investor is using Australian energy company Origin, rated Ba1/BB, as a marker for Repsol’s upcoming deal. Origin’s 4% hybrid callable 2019 is bid at 98.25 for a yield of 4.48% on Tradeweb.

“Repsol is better known than Origin and the market is hot for hybrids right now, so it could even price inside of where Origin is trading and do it 1/2% cheaper, if it markets the deal well. Saying that, for the 5bn size it is going to have to leave some spread on the table,” he said.

Repsol has appointed Bank of America Merrill Lynch as structuring adviser, together with Deutsche Bank and JP Morgan as global coordinators and joint bookrunners to organise the European investor meetings.

The company will start roadshowing on Monday, before moving to Paris and Frankfurt on Tuesday with two different teams. This suggests the company could issue the deal on Wednesday next week. (Reporting By Laura Benitez; editing by Alex Chambers, Julian Baker)

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