Argentina’s biggest oil firm sells US$500 mln of overseas bonds

An oil installation is pictured in the massive Majnoon oil field, some 40km from the eastern border with Iran, north of the Iraqi city of Basra on March 25, 2019. (AFP/Getty pic)

SAO PAULO: YPF SA, Argentina’s biggest oil company, sold overseas bonds for the first time in more than a year after a plunge in borrowing costs opened a window of opportunity.

The driller issued US$500 million of 10-year, dollar-denominated notes to yield 8.75%, according to people familiar with the offer, who asked not to be identified because the information is private.

Proceeds from the sale, which was managed by Citigroup Inc, HSBC Holdings Plc and Itau Unibanco Holding SA, will go toward working capital and refinancing existing debt.

The bonds were initially marketed to yield a bit above 9%.

YPF has seen yields on benchmark securities due in 2025 plunge by more than 2 percentage points since late April to 8.67% as Argentine bonds rallied after President Mauricio Macri’s choice of a running mate boosted his outlook for October elections.

While state-owned YPF is traditionally among the country’s biggest corporate borrowers, it hadn’t issued in international markets since 2017 as an economic slowdown and a currency crisis sapped investor confidence.

The oil producer has also taken steps to improve its balance sheet, reducing its ratio of net debt to a measure of earnings to around 2.5 times, down about 60% since 2016.

A spokesman for YPF declined to comment on the sale.

YPF is the largest investor in the Vaca Muerta shale field. Covering an area the size of Belgium, it has become one of the world’s top shale plays and is considered key to restoring energy self-sufficiency in Argentina.

The sale took place the same day the US Supreme Court published a decision to allow a shareholder lawsuit over YPF’s 2012 nationalisation to go forward.

Petersen Energia Inversora SAU, which held a 25% stake in YPF at the time of the takeover, says that company breached a contractual promise in its bylaws to make a tender offer to shareholders.

“The timing is a little odd since everyone knew the US Supreme Court decision was coming,” said Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York.

“But one take is that management has confidence in its capital expenditure plans.”