YPF SA, an Argentine counterpart of Spain’s largest integrated oil and gas company Repsol YPF, S.A. (REP), plans to sell up to $600 million of bonds as the company is seeking to expand in the upstream space. Notably, YPF will sell bonds for the first time in the last 12 years.
The 10-year bonds of YPF will carry a coupon rate of 7%, 400 basis points higher than 10-year Repsol notes due in 2017. However, YPF bonds are rated Ba1 by Moody’s Investors Service, three levels below the Baa1 ranking on Repsol debt.
YPF management said the unit will continue to engage in bond sale to the tune of $400 million to $500 million per year in order to grow its exploration and production (E&P) activities in Argentina and other international markets.
Importantly, YPF increased its crude oil production 1.9% year over year in the first nine months of this year despite the continuance of the Government cap on export that was initiated during the 2001 economic crisis.
Though YPF’s growth in the E&P space was lagging in the past few years, development initiatives by using proceeds from bonds sale are appreciable. YPF is Argentina’s biggest oil producer by market value and is treated as a blue-chip company.
Going forward, YPF may spend $3 billion to $3.5 billion a year to boost operations in Brazil, Colombia, Mexico and Canada and overseas sales may account for 50% of total revenue as against the current 30%. YPF remains an important part of Repsol as it accounted for about 65% of Repsol’s oil production. Considering all these factors, management expects a strong demand for these bonds.
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