Yinson Production becomes international player
Singapore-headquartered Yinson Production Offshore, which owns and operates floating platforms used in the oil and gas industry, plans to become a regular player in the international bond market, with a focus on its niche assets.
At the end of June, Yinson Production sold a US$1.168bn 8.498% 19.6-year bond with a weighted-average life of 12.2 years that was secured on the back of a first-priority mortgage on a FPSO (floating production storage and offloading) vessel in Brazil. The deal followed a 2024 transaction in which it raised US$1.035bn tied to another offshore FPSO vessel.
Yinson Production said the deal was the largest and longest FPSO bond ever and the longest-dated structured finance bond in Brazil.
“It’s an emerging asset class,” said Markus Wenker, chief financial officer at Yinson Production, of FPSO-linked bonds. “Sometimes I wonder why our peers are not making more use of the debt capital markets.”
According to Fitch, only five public FPSO bonds have ever been sold in US dollars.
In 2019, MV24 Capital issued a US$1.1bn bond backed by the flows from an FPSO charter project in Brazil, for which Japan's Modec, Mitsui & Co, Mitsui OSK Lines and Marubeni were sponsors.
Malaysian parent Yinson Holdings has issued ringgit bonds in the past, but Yinson Production only made its dive into the international capital markets recently. When Wenker joined in 2022, he was the first CFO and the company was 100% bank financed. Now, bank financing has shrunk to about 35%, with the remainder coming from both public and private markets.
“The whole financing landscape has shifted,” catching some in the FPSO industry off guard when export credit agencies exited the market over ESG considerations, said Wenker.
“Very long-dated loans have become prohibitively expensive for banks” because of the increased capital requirements post-Basel III, he said.
Yinson Production anticipates issuing US dollar bonds annually, depending on the pace of new projects, available assets and market sentiment, with “at least one more bond” planned for next year. The company has utilised the 144A/Reg S market, but it could look to raise dollars in the Nordic market, which it used for its international debut 15 months ago, and Brazil, where it holds assets, for smaller deals.
The company has made inroads with investors over the past couple of years, most notably in Asia following two non-deal roadshows in Hong Kong this year and other regular investor work. Deal statistics for the most recent bond sale were not released, but Wenker said orders reached four times the issue size and there was “substantially more demand” from Asia than in the previous deal. Orders were chunky, with the single largest order making up 25% of the total amount of the issue.
Understanding the market
Wenker said his first task when he started reaching out to investors was to introduce Yinson Production and explain what FPSO vessels are, and where they sit in the oil and gas supply chain.
“Our brand . . . was very established in South-East Asia, but not necessarily beyond,” he said. Now, “we really have established a brand in the international debt capital markets”.
For now, at least, the FPSO public bond market is concentrated in Brazil. “Excluding the Persian Gulf, Brazil is the largest offshore oil and gas production globally,” said Natasha Panjwani, a senior director at Fitch. “Looking at Petrobras’s business development plan helps understand where the [FPSO] market is heading.”
Wenker said the latest bond achieved the lowest spread to Petrobras at issuance of all FPSO project bonds.
Transactions linked to FPSOs are complicated, requiring cross-border discussions and numerous parties, with long tenors and large sizes needed to fit the business needs.
“They’re highly complex assets,” said Panjwani. “It is somewhere between an ABS, project finance and a corporate hybrid sort of securitisation.”
“What we’ve learned over time [is that FPSOs are] highly strategic. They’re very complex assets that require heavy capital expenditures up front.”
Sustainability challenges
While ESG concerns may deter some lenders, investors did not bring up the subject ahead of the most recent trade, said Wenker.
“The world still needs oil and gas,” he said. “People want to fly around the world . . . without oil and gas we would be back in medieval times.”
Yinson Production’s business model would not lend itself to a sustainability-linked transaction, however, the company is “not in denial of climate change”, he said.
“We are very clear in this decarbonisation journey,” said Wenker, pointing to efforts such as applying combined cycle power generation to the FPSO tied to its most recent transaction. This technology reduces carbon emissions by about 25% compared with a conventional design, according to the company. “We are innovating technologies without reinventing the wheel.”
Wenker believes there is ample opportunity for his FPSO peers to tap the international bond market, and investors are keen for paper.
“The public capital markets have pockets available that like very long-term debt” and are thus better suited for FPSOs, said Wenker. Tapping the bond market eliminates refinancing risks FPSOs would face with their traditional short to medium-term “mini-perm” financing routes with banks and opens up more short-term bank financing for project construction.
“We have proven financing for FPSOs is available if you diversify your funding base," he said.