Bloomberg/Dubai
International Petroleum Investment Co, the Abu Dhabi owner of oil refineries and chemical plants, is signalling a possible bond sale after publishing a prospectus last week amid yields at the lowest in six months.
“It’s the right time to issue,” Amol Shitole, a credit analyst at SJ Seymour Services Pvt Ltd in Bangalore, India, said by phone on February 25. “It’s a sweet spot for short-to-intermediate-term debt.”
The company didn’t immediately comment in response to an e-mail and phone call on Wednesday.
The yield on IPIC bonds due in November 2020 fell to an eight-month low of 3.21% on Thursday. It slid 75 basis points in the past six months, double the 34 basis-point drop in a JPMorgan Chase & Co Middle East corporate debt index. The government-owned company held each of its last four bond sales within 14 days of publishing a prospectus, filings compiled by Bloomberg show.
Middle Eastern oil-producing countries are expanding their refining and chemicals capabilities to cut their reliance on exporting crude. IPIC, which owns refinery operator Cia Espanola de Petroleos SAU of Spain and NOVA Chemicals Corp of Canada, plans to contribute at least $7bn to ventures building plants in Oman and the UAE. Abu Dhabi, the UAE’s capital and largest emirate, holds 6% of world oil reserves.
Energy exports are bolstering government budgets in the region, and state support contributes to the strong creditworthiness of borrowers like IPIC, Montasser Khelifi, senior manager for global markets at Quantum Investment Bank Ltd, said by phone from Dubai on Wednesday.
IPIC “plays a crucial role in the government’s strategy for diversifying the economy and is irreplaceable,” according to the February 19 bond prospectus. “In terms of credit risk, it is impossible to differentiate between the government and the company; and the government backs the company fully and unconditionally.”
Standard & Poor’s and Fitch Ratings rank the company’s debt at the same AA level as Abu Dhabi sovereign bonds.
“It’s a good time for issuance in the market because rates are at a low level and have been quite steady,” Quantum Investment’s Khelifi said. “There is appetite in the market for bonds from a company like IPIC.”
Khelifi estimated IPIC could borrow at rates of 2.5% to 2.6% for a five-year bond. SJ Seymour’s Shitole said it could sell such debt at a coupon of 2.5%.
IPIC released its latest prospectus for a global medium- term note program under which it can periodically sell bonds. The company last sold securities on November 30, 2012, when it issued bonds with maturities ranging from three to 10.5 years. It published the prospectus for that sale four days earlier, on November 26.
The company has $1.75bn in bonds due next year, according to data compiled by Bloomberg. Proceeds from any bonds it sells now could go toward refinancing that debt, Khelifi said. IPIC also funds its own investment projects.
Among its next projects are an oil refinery in the UAE emirate of Fujairah, forecast to cost about $3.5bn, and another plant in Duqm in neighbouring Oman, according to last week’s prospectus.
IPIC and partner Oman Oil Co will split evenly the $6bn cost of the facility planned for Duqm. IPIC said it’s evaluating financing options for both projects.
The company also plans to build a “multibillion dollar” petrochemicals facility in Abu Dhabi to help diversify the sheikhdom’s economy.
“IPIC has an aggressive capital expenditure programme,” Shitole of SJ Seymour said.