Petronas’ first bond issuance in four years likely to spike demand, making it cheaper to raise funds

Sunday 30 Mar 2025

Petronas’ first bond issuance in four years likely to spike demand, making it cheaper to raise funds — CreditSights

27 Mar 2025, 11:12 am

KUALA LUMPUR (March 27): Petronas’ first bond issuance in four years is expected to attract strong investor demand, potentially tightening spreads, lowering yields, and reducing its borrowing costs, according to CreditSights, a research arm of Fitch.

The research firm noted that Petronas’ new senior unsecured bonds, maturing in five, 10, and 30 years, were initially marketed at 1.20%, 1.30%, and 1.50% above US Treasury yields, respectively. However, it expects final pricing to be 37.5 basis points (bps) tighter than the initial price guidance.

“We expect that the final pricing for Petronas’ new bonds will be approximately 37.5 basis points lower than the initial guidance, with the five-year bond at T+83 basis points, the 10-year at T+93 basis points, and the 30-year at T+113 basis points,” CreditSights said in a note to clients.

The firm described the initial price guidance as “generous”, possibly signalling a large deal size. It also sees room for further spread tightening in the secondary market, estimating that the bonds could narrow by an additional eight bps for the five-year tenor, three bps for the 10-year tenor, and 14 bps for the 30-year tenor.

Petronas, Malaysia’s state-owned oil and gas (O&G) company, is reportedly looking to raise up to US$3 billion (RM13.27 billion) through a three-tranche US dollar bond issuance.

In October last year, Bloomberg reported that the company had sought proposals from bankers for a potential dollar bond offering.

The company’s last bond issuance was in 2021, when it raised US$3 billion (about RM12.33 billion) through a dual-tranche senior bond offering. This comprised US$1.25 billion of 10.75-year notes and US$1.75 billion of 40-year conventional notes, carrying coupons of 2.48% and 3.404%, respectively.

CreditSights maintained a “market perform” recommendation on Petronas, favouring shorter-dated bonds (2026-2032 maturities).

The research firm noted that Petronas’ shorter-dated bonds trade 15-25 bps tighter than Indonesia’s state-owned O&G firm PT Pertamina, suggesting some room for further tightening.

“Petronas’ longer-dated bonds trade 50-60 bps tighter than Pertamina, which we view as fair.

Despite higher capital spending and ongoing dividend payments, CreditSights expects Petronas to maintain positive free cash flow, thanks to its strong credit profile, large O&G operations, healthy cash reserves, and solid government support.

It also welcomed the near-resolution of the Petronas-Sarawak dispute, but remains cautious about potential future challenges.

In a February note, CreditSights described Petronas’ loss of gas distribution rights in Sarawak, while retaining its liquefied natural gas (LNG) operations there, as a favourable outcome. It expects Petronas’ earnings to fall by a manageable 1% to 11%, which is considered a modest impact given Sarawak’s push for full control of the business.

A meeting between Prime Minister Datuk Seri Anwar Ibrahim and Sarawak Premier Tan Sri Abang Johari Abang Openg resulted in Petronas recognising Petroleum Sarawak Bhd (Petros) as the sole gas distributor in Sarawak except for LNG, that is mainly exported by Petronas.

Further, Petronas and its subsidiaries will not be required to obtain additional licences for their operations in Sarawak, and all external contracts related to petroleum activities signed by Petronas will be upheld.