(Bloomberg) -- Investors in Acelen, the oil refinery operator owned by Mubadala Capital, are losing their patience as talks for a potential sale to Brazil’s state-controlled oil firm Petroleo Brasileiro SA drag on.
The bonds, which have been dropping for the past two months, slumped after management failed to provide debtholders with major updates on the possible acquisition in an earnings call Sept. 30, people familiar with the matter said.
It’s a sharp pullback from a 30-cent rally seen in the past year on prospects of a purchase, which overshadowed weak earnings. The 2031 bonds have slipped about 8 cents in the last couple of months, to trade for 85 cents on the dollar, Trace data show. Yields have jumped to the highest since February.
Petrobras, which previously operated the refinery — Mataripe, in northeastern Brazil — is still weighing the purchase, though its top executive said last month it wasn’t a priority.
“Some investors are simply trading the range,” said Roger Horn, a senior emerging-market strategist at Mariva Capital Markets. “The lower price band is looking at the credit on a standalone basis as a refiner credit in a weak market dynamic. When there’s optimism for a deal to be announced the bonds move up.”
Acelen declined to comment, while a representative for Petrobras said there’s no new developments regarding the negotiations.
Acelen’s results have been under pressure as the industry grapples with low margins. The so-called refining crack spreads — the difference between the price Acelen pays for the crude and the price it’s able to pass on to consumers — has plunged 33% over the last year to $5.4 a barrel in the second quarter, according to a report from Balanz Capital Valores.
Mataripe, built in 1950, has also struggled to compete with rivals that are owned by Petrobras. Acelen even accused the oil giant of selling crude to its refinery at higher prices. Some analysts have said the deal alone could help bolster the margins.
If Petrobras moves ahead with the acquisition, the existing gap of over 500 basis points between Acelen and Petrobras bonds due in 2031 should compress, according to strategists.
To Ezequiel Fernandez, an analyst at Balanz, who has held an underweight recommendation on Acelen since early September, recent remarks from Petrobras downplaying its interest in a transaction could be just negotiation tactic. Still, he says it’s not the time to turn bullish on the credit.
“We think the M&A is more likely to happen than not,” Fernandez said. “But by playing around with probabilities and the suspense that we might have until Mubadala and Petrobras come to an understanding, we would be more comfortable” buying the 2031s closer to 75 cents on the dollar, he added.
--With assistance from Mariana Durao.
©2024 Bloomberg L.P.