PetroChina, Asia's top oil and gas producer, plans to issue up to $8.7 billion in corporate bonds in China's biggest domestic corporate bond issue by a listed company as high oil prices pressure its finances.
Analysts said the huge issue, which will have to go through traditional regulatory procedures, would also mark a setback to the central bank's efforts this year to take a greater role in the corporate debt market. PetroChina said on Wednesday it plans to issue 60 billion yuan ($8.7 billion) bonds in a single or more tranches, with durations up to 15 years, pending shareholder and regulatory approvals.
"(The issue aims) to satisfy the operational needs of the company, further improve its debt structure, reduce the financing costs and supplement the working capital of the company," PetroChina said in a statement published on the websites of the Hong Kong and Shanghai stock exchanges.
The issue, at its maximum amount, would be the largest by a listed company and equal to a record corporate bond issue launched by the Ministry of Railways last year. The ministry, however, this year launched an even larger 80 billion yuan issue of medium-term corporate bills, a new product initiated by the central bank as it seeks to deepen China's corporate debt market.
"Mounting losses from the refining division are increasing the pressure on PetroChina at a time it's raising capex," said DBS oil analyst Gideon Lo in Hong Kong. "The firm is raising cash now to prepare for future needs, whether it's capital spending or possible overseas acquisitions."
Wang Jing, a petrochemical analyst at Orient Securities in Shanghai, said PetroChina was focusing on its own financial needs instead of acquisitions abroad, which have grown expensive. "While costs are surging due to record high oil prices and income is falling, hit by refining losses, PetroChina could breathe easier about its working capital situation in the medium and long term if it has approvals for bond issues on hand," Wang said.
Bond market analysts said they expected a warm welcome for PetroChina's bonds when they are issued. "We expect PetroChina to issue bonds in tranches, each with a maximum of 20 billion yuan," said Dai Xu, senior corporate bond analyst at Galaxy Securities in Beijing.
"Insurance companies and other institutions will snap up the bonds because of an acute shortage of medium- and long-term bonds on the domestic market," he said. PetroChina's Shanghai- and Hong Kong-listed shares were largely flat at midday on Wednesday, showing little response to the announcement of the bond plan.
Analysts said they believed PetroChina's plan to issue such a large volume of bonds through traditional approval channels could be a compromise among various regulators as China tries to streamline and reform its corporate debt approval process.
Sources close to the situation have told Reuters that China's cabinet has stepped in to try to resolve inter-agency feuding that is casting a cloud over development of China's corporate bond market, which the government is keen to develop as a source of corporate funding.
China's top economic planner, the National Development and Reform Commission (NDRC), and the stock watchdog, the China Securities Regulatory Commission (CSRC), now share authority to approve corporate bond issues of one year or more, with the NDRC handling non-listed companies and the CSRC reviewing listed companies.
But the People's Bank of China, which is responsible for approving short-term commercial bill issues, created a medium-term bill market in April by expanding the maximum 12-month tenor of the bills, which are traded among banks, to five years.
"PetroChina is believed to have considered medium-term bill issues, but regulatory feuding might finally have pushed it back to the traditional turf of the NDRC and CSRC," said a senior bond analyst at a major Chinese bank, who declined to be identified. "The shift could signal a trend, with fewer commercial bills, supported by the central bank, expected in the near term."
The CSRC and the central bank declined to comment on the matter, while no comment was immediately available from PetroChina. The new medium-term corporate bill market has quickly gained popularity. Since mid-April, 65 billion yuan of paper has been issued. Almost all of the issuers are large state-owned enterprises such as Sinochem and Minmetals. Opposition, however, has also been strong, with the CSRC promptly barring securities mutual funds from buying medium-term commercial bills, citing concerns about risk.
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