Structured Bond Market Gets Lift From $ 269 billion of oil Plan

Brazil planned 461 billion reais ($ 271,000,000,000) of investment in its oil and gas industry is to stimulate interest in sales of structured bonds, as companies take advantage of investor demand for debt on oil reserves of the nation.

Odebrecht Oil and Gas, the oil services company that operates two state-owned boats for Petroleo Brasileiro SA, sold $ 1.5 billion of bonds last month linked to the drilling revenues in the first bond offering reference project. The 6.35 percent rate of interest is "competitive" with bank loans, Marco Campos Rabello, director of structured finance in Salvador, Brazil-based oil and gas business, said in an interview.

"I am very sure that there will be follow-on offers early next year," said Dan Vallimarescu, managing director and head of American capital markets debt at Banco Santander SA in New York, an interview. "Every single bank worth its mettle is to launch the project for each client."

Brazilian Equipment Manufacturers can use the bond market to help finance the construction, attracted by the cheaper interest rates and encouraged by regulations that require Petrobras to make purchases from local suppliers. Brazil, home to the largest oil discovery in the Western Hemisphere since Mexico's Cantarell in 1976, the needs of drill ships, platforms and pipelines to take advantage of up to 100 million barrels of oil at sea.

Odebrecht, with contracts to provide five vessels in deep water drilling Petrobras, use the links the project to refinance a bank loan of 1.5 billion dollars earned in 2008. The coupon is lower than Odebrecht original loan is paid off, said Rabello.

"Taken note"

"Other broadcasters have taken note and are considered similar issues," said Alexei Remizov, chief markets of Brazil, capital of the debt of HSBC, the second largest underwriter of Brazilian international debt this year after JPMorgan Chase & Co.

Petrobras, based in Rio de Janeiro, raised about $ 70 billion in September to the world's largest sale to help finance part of its 224 billion, the investment plan of five years, the largest oil industry . The company has hired 20 foreign drilling rigs to begin operation in the next two years as fields that taps as Libra, which can hold 15 billion barrels.

$ 1,500,000,000 Odebrecht offer 10-year bonds on Nov. 18 with a yield of 6.375 percent, or 370.3 basis points more than Treasuries of similar maturity. Reference usually means at least $ 500 million.

The 6.35 percent securities traded at 103 cents on the dollar to yield 5.98 percent yesterday, compared with a yield of 5.9 percent for the debt of Odebrecht 7 percent, due in 2020 and a return 4.7 percent of similar bonds at maturity issued by Petrobras, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

'On appeal'

"The whole development of oil and gas sector is what makes this an attractive asset," said Bernardo Costa, a Latin America analyst structured finance at Fitch Ratings Inc. in Chicago. "Certainly there are a lot of opportunities for both the banking and bond markets in the long term."

Recent oil discoveries in Brazil, the largest in the Americas since 1976, are in the region known as the pre-salt, which extends 800 kilometers (500 miles) from the coast. The deposits of oil lie beneath a layer of salt at rest at a depth of 3,000 meters (9,800 feet) below the ocean surface and 5,000 feet below the seabed.

Brazil, the president-elect Rouseff plans to invest 955 billion reais in infrastructure development through 2014, including 461 billion reais for the exploitation of oil reserves in the pre-salt and sustainable energy development.

The appetite of investors

"It is clear that there is an appetite from institutional investors abroad to finance oil and gas in Brazil," Odebrecht said by telephone Rabello. "The advantage of going to borrow on capital markets is that we will have two funding sources, and we can always analyze it based on liquidity and maturity."

Average yields on bonds Brazilian company in relation to benchmarks rose nine basis points on November 30 for 307 basis points, or 3.07 percentage points, according to JPMorgan Chase & Co. 's CEMBI bond index.

The extra yield investors demand to hold dollar Brazilian government bonds instead of U.S. securities fell 1 basis point to 182 at 6:23 am New York time, according to JPMorgan.

Yields on Brazil, the interest rate futures contract in January 2013 rose two basis points to 12.31 percent. The real rose 0.2 percent to 1.7017 per dollar.

The cost of protecting debt of Brazil against nonpayment for five years with credit-default swaps fell six basis points to 117, the largest daily decline in three months, according to data compiled by CMA DataVision. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

Infrastructure Investment

Bondholders Odebrecht projects will be paid with future revenue from the operation of the two drill ships and hold them as collateral in case of default, according to Fitch.

Investors are willing to take these risks because they are seeking alternative ways to invest in infrastructure growth in Brazil, said Jonathan Prin, a debt analyst at JPMorgan Asset Management in New York, which oversees $ 10.8 billion assets of fixed income emerging markets.

"There has been interest in the type of investment where the risk is directly related to infrastructure," rather than the bonds of a development bank or steel, said in an interview. The credit risk of "blue chip names, such as Petrobras and Odebrecht, a structure that contains clauses strong bonds made" attractive, "he said.

project bonds will increase funding for infrastructure development in Brazil by the release of bank balance sheets to make new loans, according to Vallimarescu Santander.

Financing Challenge

"We all know that Brazil has a funding requirement of huge infrastructure, like the rest of the region. There has been a real challenge as to where that money will come," said Vallimarescu, who signed with HSBC bonds Odebrecht Holdings Plc, Banco do Brasil SA and Deutsche Bank AG. "Banks are going to be going at first to finance the risk of early construction phase, and then we recycle that funding in the bond market."

interest rates hit a record low combined with the need to finance infrastructure projects in emerging markets may allow more links project to be sold in the future, said HSBC Remizov.

"The appetite for infrastructure-related bonds has increased in recent years," Remizov said in a telephone interview. "This could lead to future transactions of this type."