BP Issues $12 Billion In Hybrid Bonds

BP has raised some $12 billion in a hybrid bond issue, the Financial Times has reported, taking advantage of low interest rates and strengthening its balance sheet just days after it announced it would books heavy writeoffs in its second-quarter financial report.

The supermajor said earlier this week that it will book pre-tax writeoffs on assets and exploration to the tune of $16-21 billion in its second-quarter results as it revised down its long-term oil price assumption and launched a review into its exploration plans. The review and the revision that will lead to the writeoffs follow the company’s aggressive pursuit of net zero carbon emission goals for 2050.

Now, the FT reports, BP issued $5 billion worth of bonds in U.S. dollars, 4.75 billion in euro, and 1.25 billion in British pounds, with the interest on the hybrid bond as low as 3.25 percent. This, the FT noted, was the largest ever sale of hybrid bonds.

Hybrid bonds are called that because they combine the features of debt and equity. They do carry a coupon but have no maturity, or the maturity is very long. Also, the issuer may decide to cancel coupon payments just as they could decide to cancel dividend payouts. What’s more, credit rating agencies treat hybrid bonds as half-debt and half-capital, which ultimately benefits the issuer’s credit ratios.

“BP hasn’t issued hybrids in any market and now they’re hitting every market at once,” the director of debt capital markets at Citi, Colm Rainey, told the FT. “A decently sized and priced hybrid can help the balance sheet when in the eye of the storm.”

BP, like its peers, has made major cuts to short-term spending as a result of the oil price crash and the coronavirus pandemic. But it has focused the cuts on its core business while planning a long-term increase in investments in alternative energy, driven by the new clean energy goals and the pandemic, which will have a lasting effect on the industry.

By Irina Slav for Oilprice.com

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