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International Petroleum Investment Co plans to sell bonds to repay part of a $2bn loan due in September, taking advantage of narrowing spreads between its debt and US Treasury notes that reached new lows last month.
The yield on the Abu Dhabi state-owned company’s 4.875% bonds due in May 2016 dropped to a record 1.285% on May 2, according to data compiled by Bloomberg. The bonds’ spread over five-year Treasuries narrowed on May 20 to 13 basis points, the lowest since the corporate securities started trading in March 2011, the data show. Amid the falling borrowing costs, company officials said last month they want to refinance.
“If you see that the market is willing to lend and you’re going to get lower rates, it makes sense to sell bonds,” Amol Shitole, an analyst with SJS Markets in Bangalore, India, said by telephone May 28. “There’s a window in the market now to take advantage of lower borrowing costs.”
IPIC, as the company is known, owns refinery operators in Spain and Japan, and chemical companies in North America and Europe. It plans to spend as much as $4.5bn to build a fuel-processing plant in Fujairah in the United Arab Emirates and $3bn for another one in neighboring Oman.
The UAE capital of Abu Dhabi, where IPIC has its headquarters, holds about 6% of the world’s proven oil reserves.
The yield on the company’s €1.25bn ($1.6bn) of debt due in May 2016 plunged 333 basis points, or 3.3%, since March 2011 to 1.63% today, according to data compiled by Bloomberg. The decline outpaced the 200 basis-point drop in the HSBC/Nasdaq Dubai Middle East Conventional US Dollar Bond Index in the same period. Bonds in the index yielded 3.8% on June 3.
Lower yields and thinner spreads create “potential opportunity to look toward capital markets, in part, for a refinancing,” Edward Hesson, IPIC’s treasury chief, said on a May 20 conference call with investors.
In addition to the dirham-denominated bond maturing in September, the company will probably refinance a ¥67.5bn ($681mn) bank loan due in June, Hesson said.
IPIC borrowed the money in 2008 to pay for a stake in Japan’s Cosmo Oil Co and may keep the loan as a currency hedge, he said.