Bonds sold by Pan American Energy LLC, Argentina’s largest oil exporter, are extending losses relative to regional peers on speculation BP Plc’s $7.1 billion deal to sell the explorer to a joint venture half-owned by China’s Cnooc Ltd. may fail.
Yields on Pan American’s 7.875 percent dollar bonds due in 2021 rose 14 basis points, or 0.14 percentage point, to 8 percent on Sept. 30. Similar-maturing debt sold by Petroleos Mexicanos was unchanged at 4.87 percent, while yields on Petroleo Brasileiro SA’s 2021 bonds fell 4 basis points to 5.31 percent. Pan American’s underperformance is likely to worsen on news that BP’s agreement may fall through, said Ruth Mazzoni, a corporate bond analyst at Standard Bank in New York.
BP agreed last November to sell its 60 percent stake in Buenos Aires-based Pan American Energy to Bridas Corp. The deal hasn’t been approved and BP is prepared to let it lapse when the accord expires in November, a person with knowledge of the matter said last month.
«The bonds will drop with this news,» Mazzoni said in a telephone interview. «People were expecting that that they’d have access to capital at very low costs, and the second reason is that people will think it’s the government that is blocking foreign investment.»
$20 Billion
London-based BP decided to sell Pan American as part of a plan to divest as much as $30 billion-worth of fields to shore up its balance sheet after the Gulf of Mexico oil spill last year. The company had about $20 billion in cash at the end of the second quarter. It has turned a profit in every period since the record $17 billion loss in the second quarter of 2010, bolstered by a 40 percent gain in Brent crude prices.
«Deals of this scale take time to finalize with competition authorities,» London-based BP spokesman Robert Wine said in an e-mail last week. «We are working with the other shareholders in PAE to secure competition approvals and complete the deal. We can confirm the deal has not yet closed as Argentine competition approvals remain outstanding, but we remain optimistic that these approvals will be granted in due course.»
Bridas Corp. already owned 40 percent of Pan American. Bridas is owned in equal parts by Argentina’s billionaire Bulgheroni family and by China’s Cnooc Ltd., which bought its stake in March 2010 for $3.1 billion. The deal is completed, according to Bloomberg data.
Bonds Recommendation
Barclays Plc in March recommended investors to buy Pan American bonds because state-controlled Cnooc was likely to back the debt, analyst Juan Cruz said at the time. Barclays officials declined to comment when contacted by Bloomberg News.
An official at Pan American, which speaks on behalf of Bridas, declined to comment. Pan American officials said in March that the company’s debt isn’t guaranteed by any stakeholder.
Horacio Mizrahi, the spokesman for the Argentine Planning Ministry, which oversees the energy industry, could not be reached on his mobile phone and did not return a message left at his office seeking comment.
The extra yield investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries fell 14 basis points to 979 at 9:11 a.m. New York time, according to JPMorgan Chase & Co.
Warrants linked to growth in South America’s second-biggest economy fell 0.04 cent to 13.77 cents.
The peso was little changed at 4.2035 per dollar.
A failure to close the sale is unlikely to impact Pan American’s bonds because both Cnooc and BP are good partners, Su Fei Koo, a portfolio manager at Doubleline Capital LP, said. Doubleline owns about $4.5 million in Pan American bonds, Bloomberg data show.
Strong Credit Fundamentals
«I don’t think it’s going to impact that much on the bond,» Koo said in a Sept. 30 telephone interview from Los Angeles. «Pan American Energy by itself has very strong credit fundamentals. I think Cnooc, or Bridas, and BP are both relatively strong sponsors.»
BP and Cnooc are both rated A by Fitch Ratings, seven levels above Pan American’s BB- rating.
The Pan American sale, which was due to be completed by June 30, was put on hold until after Argentina’s Oct. 23 election, Yang Hua, chief executive officer of Beijing-based Cnooc, said Aug. 24.
Another Chinese oil company, China Petroleum & Chemical Corp., or Sinopec, acquired Occidental Petroleum Corp.’s Argentine unit for $2.45 billion in December 2010, after Bridas agreed to buy BP’s deal. The Sinopec deal is already complete, Bloomberg data show.
Increasing Production
From 2001 to 2010, Pan American increased its daily oil production 70 percent to 241,000 barrels per day and increased Argentina’s proven reserves of oil and gas 43 percent to 1.4 billion barrels, according to the company’s website. It invested $6.7 billion over that period and has exploration, production and distribution projects in Argentina, Chile and Uruguay.
The company «is a good asset, so I can understand why BP would still want to hold onto it,» Koo said.
–With assistance from Drew Benson in Buenos Aires and Brian Swint and Brett Foley in London. Editors: Bill Faries, Dale Crofts
To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net
Source: Bloomberg