State-owned Petrotrin on Tuesday closed a US$850 million bond to raise money to finance a gasolene optimisation project which is at least a year behind schedule and more than $3.6 billion over budget, Guardian investigations have revealed. Petrotrin spent $3.34 billion on the project to produce cleaner gasolene in 2007 and 2008 and plans to spend a further $5 billion on the project in 2009 and 2010, according to the confidential preliminary offer document for the US$850 million bond issue. This means that the project which was originally budgeted to cost $4.6 billion (US$750 million) will end up costing $8.34 billion (US$1.3 billion). According to the offer document, Petrotrin incurred expenditure of $1,010 million as of April 2009 on the project and expects to spend a further US$202 million on completing the upgrade, which is 83 per cent complete, by October 2010.
In the document, Petrotrin admits that the project "has incurred significant cost overruns," but it blames "exceedingly unfavorable pricing of construction contracts, increase in the scope for utilities and offsite services and increase in the scope of the FCCU," the Fluid Catalytic Cracking Unit. At US$1.3 billion, the gasolene optimisation project, which is meant to improve gasolene quality and volumes, is one part of Petrotrin's Clean Fuels Programme. The other is the US$392 million ultra-low sulfur diesel (ULSD) plant which will produce higher quality diesel fuel. After the expenditure of close to US$1.7 billion, the full conversion capacity of Petrotrin's Point-a-Pierre refinery will increase from 150,000 barrels of petroleum per day (bpd) to 168,000 bpd of higher-valued product. The oil company had originally estimated that the US$750 million bond, raised in May 2007 and arranged by Citibank, would have been enough for the gasolene optimisation project. But the cost overruns forced Petrotrin to go back to the international capital markets to raise an additional US$850 million.
The ten-year bond was priced at a discount to yield 9.875 per cent, which was 0.70 per cent above where Petrotrin's 15-year bond, raised in 2007, was trading on Tuesday. Following what was described as a highly successful road show which took Petrotrin officials to London, New York and Los Angeles, the bond was massively over-subscribed, attracting bids of more than US$5 billion. The demand for the bond meant that each prospective bidder received only 17 per cent of the what they requested.
A local broker, who was selling the bond, said that it was "very impressive" that the bond was so heavily over-subscribed. He said it seemed as though the investment bankers to the issue, Credit Suisse and JPMorgan, told Petrotrin that "it would not have flown" if the yield were less attractive. But other analysts told the T&T Guardian that the bond was simply too attractively priced and that Petrotrin was paying much more than they should for the debt.
"Petrotrin got real wood with that transaction," said a local investment banker. "It was horribly mispriced and it seems that the traders would have made a killing. A good way to judge that Petrotrin paid much more than they should for the bond was the price at which Barbados borrowed money." Last week, Barbados raised US$120 million by selling US$80 million five-year bonds at 6.75 per cent and US$40 million ten-year bonds at 7.8 per cent. The investment banker said the fact that Barbados was raising less money than Petrotrin meant that the Barbados issue was much more illiquid than the local company's which should have had an impact on the price.
