The Weekly Report: Petrotrin 2019 Point of Entry?

29 May 2012


March Flashback

Petrotrin strikes black gold…New find estimated at 48 million barrels

Better times are in store for the man in the street following the “Jubilee” oil discovery off south-west Trinidad, estimated at 48 million barrels, Prime Minister Kamla Persad-Bissessar has assured. Persad-Bissessar spoke about what the new oilfield—off Point Fortin—would mean for the public as she flanked Petrotrin officials announcing the oil find yesterday… The Prime Minister dubbed the new oil field the “Jubilee Discovery” in honour of this year’s 50th anniversary of Independence.

T&T Guardian (March 30th 2012)

A reason to celebrate? Well any oil find is good news, but when analysed in the context of 48mm barrels being just about a year’s worth of production, I’m not sure how long those celebrations should last.

More importantly, how does Petrotrin’s (PETRTT) performance benefit YOU the investor? Delving deeper into their 2019 bond issue, the market (and of course Firstline) may just have some ways for you to beat that 1.00% or less you’re currently earning at the bank.

Issue Details

Issue Size:              USD 850mm

Issue Price:            99.217

Coupon:                 9.75% p.a. semi-annual

1-Year Range:        116.985 – 124.698

Current Price:        123.272

Liquidity

PETRTT is one of the easier names to trade throughout the region, which gives you an ‘out’ if you’re looking to take profit for your quarter or year-end books. Compared to Trinidad & Tobago (TRITOB) and National Gas Company of T&T (NGCTT) bond issues, the ability to actually find paper makes this an easy pick.

Coupon

While cycles do repeat themselves, 9.75% on a BBB credit may be a thing of the past for some time to come. Tightening (I’d say stifling) credit conditions amidst debt crises in Europe, and sluggish demand and borrowing locally, all make for an extended period of slow/low growth.

Yield

Even more instructive than the coupon received on face value is the yield you receive based on your actual cash outlay. With a price of 123.272, a 5.76% return (yield to maturity) on an investment grade credit is still nothing to sneeze at, especially when you factor in name recognition.

Entry point?

This is a tough one to answer. The question should really centre around ‘when’ rather than ‘if.’ With Greece and Spain piling the pressure on global markets, the possibility of picking up these bonds on the cheap (below 117) is a very real one. However, the option to buy now remains quite viable in present market conditions considering the dearth of alternatives.

Not interested in holding until maturity? A repo (repurchase agreement) is another route to consider.  This way you have access/exposure to the same bond for a shorter time frame and still receive a yield superior to your ‘bread and butter’ CDs.

As always, you’ve got questions, Firstline has got answers!
Contact me via email at gerard.stephens@nullfirstlinesecurities.com or phone at 622-1346.

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