An innovative four-tranche bond for Norway's oil company Statoil set the standard for size and pricing thanks to supportive monetary policy conditions, even with lower oil prices.

On Friday February 6, Norwegian oil giant Statoil unveiled a fourth-quarter net loss of Nkr8.9bn (€1bn), down from a net profit of Nkr14.8bn the year before. The results came against a backdrop of plunging oil prices and predictions that these low prices may remain a market feature for some while.

Just four days later, Statoil issued the largest ever Nordic corporate transaction in euros and the second largest euro bond offering from an oil and gas major. The deal, for €3.75bn, met with exceptional demand. The orderbook grew to more than €10bn, even as pricing was brought down and the issue size increased.

“We monitor the market on a continuous basis. We started to think about issuing in euro at the end of 2014 so we were monitoring the market to see when the opportunity would be right,” says Philippe Mathieu, senior vice-president and head of finance at Statoil.

AA rated Statoil is a regular issuer in the bond markets but it had not tapped the euro markets since 2013, preferring to focus on dollar transactions throughout 2014. This year, however, following the European Central Bank's decision to launch a full-blown quantitative easing (QE) programme, investors have been hungry for euro corporate issuance. And Statoil was keen to take advantage.

“Despite the low oil price, we were confident that we would be well received in the market. We have a good credit rating, a strong balance sheet and we’re in a robust financial position,” says Mr Mathieu.

Early bird

Normally, the oil giant does not tap the bond market until May but, sensing an opportunity to secure historically low rates, the company was keen to move quickly. Shortly after the fourth quarter results were announced, Mr Mathieu appointed four bookrunners – Barclays, BNP Paribas, Deutsche and Société Générale.

The company did not just want to issue a plain vanilla bond, however. It wanted to raise at least €3bn and was keen to tap the long end of the market. “We prefer longer maturities. Even before this latest issue, we had a weighted average maturity of nine years and we wanted to retain that emphasis,” says Mr Mathieu.

With this in mind, the bookrunners suggested a four-tranche issue – divided between an eight-year bond, a 12-year bond, a 20-year bond and a four-and-a-half-year floating-rate note (FRN) issue. The structure was designed to keep each tranche at a manageable size, boosting demand and keeping pricing tight. A four-tranche euro transaction for a corporate borrower was something of a first in the market but Statoil felt the structure made sense.

“Four tranches gave us more flexibility. It gave us access to different maturities and gave investors more choice. The FRN added a further degree of flexibility,” says Mads Holm, principal finance at Statoil.

The deal was announced early on the morning of February 10 with pricing guidance of 30 to 35 basis points over three-month Euribor for the FRN and spreads of 45 to 75 basis points for the three fixed-rate tranches.

By 11am, the order book had swollen to more than €10bn and pricing was revised down by at least 10 basis points on each tranche. Demand persisted and when the books closed an hour later, the FRN had attracted about €1.6bn of orders while the fixed-rate tranches had each seen about €3bn of orders. “We thought there would be strong demand, following the QE programme but we were very happy with the way the transaction developed,” says Mr Holm.

“The order book grew steadily and the investor base was very diverse with more than 360 institutions in the deal, including banks, pension funds and insurers,” says Mr Mathieu.

An agreeable low

Ultimately, the transaction comprised a €500m FRN at 20 basis points over Euribor, a €1bn eight-year bond with a coupon of 0.875%, a 12-year bond of €1.25bn and a coupon of 1.25% and a €1bn 20-year tranche priced at 1.625%.

“The pricing was excellent and the coupons for the 12- and 20-year tranches were the lowest ever for a European corporate. But we are also very interested in the secondary market and the secondary performance of the bonds has been very good so we are happy and investors are too,” says Mr Holm.

Looking ahead, Statoil will maintain a close eye on market conditions. The low oil price may have affected the group’s profit-and-loss sheet but QE has given the euro market a new momentum. “We will just monitor the market on a continuous basis. We have sufficient liquidity that we can come to the market when conditions are right and that is what we’ll do,” says Mr Mathieu.


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