Bond sale points to deeper ties between Bank of China and Petrobras

Petrobras' decision to hire Bank of China to help arrange the state-controlled oil producer's US$8.5 billion bond sale is raising the likelihood their ties go much deeper.

The deal, the first Latin American offering underwritten by a Chinese lender, was probably preceded by a loan the bank provided to the Rio de Janeiro-based company, said Credit Agricole's Marco Aurelio de Sa and Getulio Vargas Foundation professor Hsia Sheng. Bank of China and Petrobras declined to comment on whether a loan was made.

Petrobras is trying to develop new sources of financing as its efforts to fund US$221 billion in spending exacts a cost in the bond market. The world's most indebted publicly traded oil producer paid 3.5 percentage points more than Treasuries on the 10-year portion of its sale this week.

That is 1.45 percentage points higher than the premium investors demanded from Petroleos Mexicanos when that nation's state-owned producer sold similar-maturity bonds in January, data shows.

"They need to continue investing in their projects, and the easy funding that they would traditionally tap - Wall Street, London - it's not as accessible anymore," said de Sa, who heads fixed-income trading at Credit Agricole's Miami brokerage unit. "Petrobras, with this excessive indebtedness, is scaring some of the traditional providers of the capital."

A Bank of China official based in Sao Paulo declined to comment on the lender's participation in the offering. The bank's corporate marketing and communications office in Hong Kong did not respond to requests for comment. A Petrobras official also declined to comment on its underwriter selection process and the bond sale.