Singapore-headquartered Yinson Production recently issued a record-breaking $1.168 billion bond for a floating production, storage, and offloading (FPSO) unit in Brazil.
This marks the largest and longest-dated FPSO project bond to date, the longest-dated structured finance bond in Brazil, and the highest order book ever for an FPSO project bond.
Yinson Production used a project bond to secure long-term financing for a key asset (FPSO Maria Quitéria) integral to Petrobras’ offshore operations in Brazil. This financial strategy optimizes Yinson Production’s capital structure and attracts a wide range of institutional investors.
According to Yinson Production CFO Markus Wenker, FPSO project bonds are gaining popularity with investors due to their long-term, fixed-rate contracts (usually 15-25 years), which offer high cash flow visibility and resilience. These assets are crucial to oil companies, offering strong downside protection against default. Despite Petrobras’s financial history, it has never defaulted on an FPSO. Fitch ratings for FPSO bonds are higher than for Petrobras (BB+ vs. BB), yet they offer a higher yield, indicating a better risk-reward profile. Replacing an FPSO mid-production cycle is also prohibitively expensive due to factors including cost inflation and supply chain disruptions.
Yinson Production is shifting to public bond markets due to changes in the financing landscape for long-dated assets. Basel regulations have made long-term bank loans expensive, limiting terms to just 5–8 years, and export credit agencies have stopped financing new oil and gas projects due to ESG concerns. Diversifying funding through debt capital markets (DCM) allows Yinson Production to eliminate refinancing risk, increase financing efficiency, and de-risk its balance sheet.
Wenker explains, “The incongruity of financing maturities and project lives would leave FPSO owners exposed to significant refinancing risks resulting in an uneven consolidated debt amortisation profile with peaks. The debt capital markets, in contrast, offer pockets of money with an appetite for very long-dated bonds like project bonds.”
This approach also frees up bank exposure for new projects, as banks remain vital for construction financing, while DCM is more suitable for long-term financing during the lease and operate phase. Yinson Production also collaborates with infrastructure funds to optimize its capital structure.