Asian energy firms scramble to sell debt before rate hike

22 Apr, 2004

Big-spending Asian utilities and oil companies are rushing to sell bonds on expectations that interest rates will rise later this year.
Energy companies from South Korea to Indonesia want to raise billions of dollars to expand and increase output to meet soaring energy demand from the region's booming economies.
"They want to get their financing done as cheaply as possible and ahead of an interest rate hike. Obviously, this is the right time to do it," said Fai Auyeung, managing director and head of Asia power banking group at J.P. Morgan.
Utilities - including natural gas distribution firms - are especially active.
They have issued $1.46 billion worth of global bonds so far this year, surpassing $955 million in 2003 and half of 2002's $2.89 billion, research firm Dealogic said.
The borrowing appetite of oil and gas explorers and producers, oil service companies, pipeline operators and refiners, in Asia is not as strong because they are enjoying high crude oil prices.
Only one gas firm, Indonesia's PGN, sold a $125 million eurobond this year. Asian oil and gas firms borrowed $3.0 billion in 2003 and $4.3 billion in 2002, most of which was issued by Petronas, Asia's most acquisitive oil company, Dealogic said.
But analysts say that Malaysia's national oil firm, Petronas, and CNOOC Ltd, China's largest offshore oil producer, are likely to borrow heavily in the months ahead to finance overseas acquisitions to boost output.
"I would envisage they would need to be a little bit more aggressive on their balance sheet going forward," said Marcus Weston, a fixed-income analyst at HSBC.
Issuance is likely to cool towards the end of 2004.
"You will probably see sort of a slowdown because a lot of the issuers will have actually gone to market earlier just to take advantage of the current low interest rate environment," said a senior analyst at a Western bank. "We are expecting rate hikes towards the end of this year."
The top five banks selling the international and domestic energy bond issues were Citigroup, Nomura Securities, BNP Paribas, China International Capital Corp and Samsung Securities Co, Dealogic said.
State-controlled Korea Electric Power Corp (KEPCO) on Tuesday sold $300 million, 30-year bonds at 93 basis points (bps) over US Treasuries. The KEPCO bond sale came a week after Korea East-West Power Co Ltd sold $250 million, seven-year bonds.
Petronas plans to sell $1.0 billion in bonds and loans for two petrochemical units it owns with US-based Dow Chemical Co, sources said. Indonesia's largest listed oil and gas firm, PT Medco Energi, is also considering raising more than $100 million to finance acquisitions.
"Everybody has got a lot of cash. But it is worth taking advantage of this attractive window in the industry. The low rates are very good right now for issuing long-term credit," said a top oil and gas banker with a large Western investment bank.
Oil and utility firms have also been borrowing in their domestic markets, thanks to abundant money supply.
Asian oil and gas firms have issued $1.1 billion worth of domestic bonds so far this year, compared with $3.1 billion in all of 2003 and $2.1 billion a year earlier. Utility firms have issued $2.1 billion of local bonds this year against $17.8 billion in 2003 and $16.2 billion in 2002.
"Now there is definitely a lot of domestic liquidity in all the Asian countries at the moment," said Vijay Sethu, director and head of Asia power banking at ANZ Investment Bank.

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