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Fortescue and Petrobras - New high yielding US dollar DirectBonds

by Alen Golubovic | Sep 16, 2014

These bonds suit investors seeking attractive yielding US dollar bonds. The US$10,000 minimum investment also allows for lower investment levels than other US dollar DirectBonds, providing the opportunity for greater portfolio diversification.

With the AUD/USD exchange falling below 90c and hitting a six-month low, investment in these US dollar bonds provides investors with both income return as well as currency protection should the Australian dollar continue to fall.

FMG Resources (August 2006) Pty Ltd – Fortescue

  • FMG Resources (August 2006) Pty Ltd has issued a senior unsecured bond that ranks behind Fortescue’s secured bank facilities.
  • Fortescue Metals Ltd is an ASX-listed mining company specialising in iron ore production. It is the world’s fourth largest iron producer, and has a market capitalisation of $12.3bn
  • Fortescue's record profit for FY14 ($2.73bn underlying profit), debt reduction, successful ramp-up to a 155mtpa production run rate, and improving credit metrics have resulted in a recent upgrade of its corporate credit rating by S&P
  • Being purely an iron ore producer, Fortescue’s earnings and cashflow position are sensitive to iron ore prices. However, Fortescue continues to focus on costs in order to move down the global cost curve. In the June 2014 quarter, total delivered costs to customers were US$49/wmt, 8% lower than the prior quarter. Therefore, despite iron prices falling to levels close to $80/tonne, Fortescue is still profitable based on its very low production costs. Importantly, as can be seen from the cost curve chart below, only BHP and Rio produce iron ore more cheaply than Fortescue globally
  • Importantly, analysts are still forecasting good profitability ($1.9bn NPAT for FY15) for Fortescue despite a depressed iron ore price. According to Bloomberg, current FY15 analyst forecasts are as follows: Revenue $12.9bn; EBITDA $4.7bn; NPAT $1.9bn; Free Cash Flow $1.4bn

The FMG Resources (August 2006) Pty Ltd April 2022 DirectBond is currently offered to wholesale investors at an indicative yield to maturity of 5.64%. The 2-page research flyer can be accessed from the following link.

Source: Company presentation

Petrobras Global Finance B.V

  • Petrobras is a semi-public Brazilian multinational energy corporation, and is the world’s 3rd largest oil producer and 5th largest oil and gas producer, and second only to ExxonMobil in terms of oil reserves globally
  • In terms of financial scale, Petrobras has a market capitalisation of US$107bn, making it one of the largest listed entities in the southern hemisphere
  • In FY13, Petrobras achieved NPAT of US$11bn and adjusted EBITDA reached US$29.4bn for FY13. Petrobras had total assets of US$321bn as at FY13.
  • The bond has an investment grade rating, with Brazilian government support providing uplift to the rating
  • FY15 analyst forecasts (Bloomberg mean): Revenue US$153bn; EBITDA US$37bn; NPAT US$13.4bn; Free Cash Flow -US$13.8bn (note Free Cash Flow based on operating cash flow: US$30.2bn less capex: -US$43.9bn)

The Petrobras Global Finance B.V. May 2023 DirectBond is currently offered to wholesale investors at an indicative yield to maturity of 4.48%. The 2-page research flyer can be accessed from the following link.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.

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