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IPIC signals new bond as yield slide entices sale

“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’s bonds due in November 2020 fell 75 basis points in the past six months to 3.23 per cent on Wednesday. That’s more than double the 34 basis-point decline 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 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 $7 billion to ventures building plants in Oman and the UAE. Abu Dhabi holds six per cent 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, 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 per cent for a five-year bond. SJ Seymour’s Shitole said it could sell such debt at a coupon of 2.5 per cent. 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.