BEIJING, Mar. 8-- Total SA, Europe's largest oil refiner, may pay less than at previous sales to refinance 1 billion euros(US$1.3 billion) of bonds maturing in the next eight months as surging crude prices boost the company's earnings.
Paris-based Total's bonds have rallied as oil rose to more than US$54 a barrel. The extra yield, or spread, investors require to buy Total's 4.5 per cent bonds due in 2009 rather than European benchmark debt has narrowed 25 basis points to 14 basis points since they were sold in March 1999, better than the 4.5 basis point decline for the average investment-grade rated company, according to Merrill Lynch& Co data. A basis point is 0.01 percentage point.
"We have issued bonds at tighter and tighter spreads over the past few months," Charles Paris de Bollardiere, Total's treasurer, said in an interview from Paris."I hope we will issue tighter again" at the next sale.
About US$3 billion of the US$51 billion of outstanding energy company debt denominated in euros and pounds comes due this year. Total has the most bonds maturing in Europe this year, according to data compiled by Bloomberg.
In January 2004, Total sold 500 million euros(US$660 million) of 3.75 per cent bonds due in 2010. The spread on the bonds has narrowed to 8.5 basis points from 19 basis points when they were issued. The decline means the company would save 10,500 euros(US$13,867) in annual interest for every 10 million euros(US$13 million) borrowed in a sale yesterday.
Total is rated Aa2, the third-highest investment grade by Moody's Investors Service, and an equivalent AA by Standard& Poor's and Fitch Ratings. Moody's has a positive outlook on its ranking, indicating it's more likely to rise than to fall or be left unchanged. The S&P and Fitch ratings are stable.
Total may sell US$900 million of bonds this year, said Paris de Bollardiere."We will continue to issue this year as long as conditions are good," he said."We are very keen to issue at a good price."
The average extra premium, or spread, investors require to hold energy bonds instead of government debt has narrowed 16 basis points in the past year to 49 basis points, near the lowest in six years, according to Merrill's EUR Corporates, Energy index. The decline represents a saving of about 16,000 euros(US$21,131) in interest per year for every 10 million euros of bonds sold.
Merrill's index is comprised of 31 issues with a market value of 19.9 billion euros(US$25 billion). Bonds sold by Total, Petroleos Mexicanos, and Repsol YPF SA are in the index.
Energy bonds returned 8.39 per cent last year, compared with 7.58 per cent for the broader index, according to Merrill data.
(Source: China Daily/by Melanie Bull)