* Euro bond for 2016 at 25 pct May 20 vs 7 pct April 20
* Restructuring of company finances growing more urgent
* CFO says Friday deadline not big obstacle to get debt deal
(Recasts, adds analyst comment)
By Tom Freke
LONDON, May 21 Bonds in Ineos Group [INEOS.UL], a British chemicals maker, have surged in value over the last month, yet the group faces months of tough talks with its lenders as its financial position weakens.
"With a shortfall in operating cash flows, financial covenant complications and cash restructuring charges, we expect liquidity to continue to deteriorate," bond analysts at CreditSights said on Thursday.
Bank lenders have until Friday to approve extending a covenant waiver to July, allowing Ineos additional time to secure a debt deal with its banks and bondholders.
Talks will centre on the search for a reduction in the company's 7.5 billion euro ($10.3 billion) debt load and investors have been buying into the debt believing they can profit ahead of the upcoming restructuring process.
The closing price of the company's euro bond maturing in 2016 GB024294536= stood at about 25 percent of face value on May 20 compared with just 7 percent on April 20.
"The market has slowly decided that Ineos might get away in the short term without a major restructuring," a high-yield bond trader said.
Yet CreditSights estimated Ineos may have just 160 million euros of net liquidity available by the end of the second quarter of 2009.
At the start of the year, the sector was rocked by slumping demand for chemicals products and news that LyondellBasell [ACCEIN.UL], the world's third-largest petrochemicals company, had filed for Chapter 11.
FRIDAY NO OBSTACLE
In a conference call with analysts and investors on Wednesday, Ineos Chief Financial Officer John Reece declined to detail the current level of creditor support for the extension, but said the Friday deadline should not be a major obstacle in the company's quest for a final deal with lenders.
"The short-term extension is only to move the (covenant waiver) deadline to July, but the main task remains -- to come up with a long-term solution for the full syndicate of lenders to agree upon," Reece said.
He said the company was interested in cutting its debt, but this could only happen with the approval of lenders.
Ineos executives, advised by Lazard & Co, met with bank lenders in London and New York earlier this week, Reece said.
Major loan holders have formed a group to work with Ineos on its restructuring plans, and this "sounding group" has hired advisers Deloitte and Houlihan Lokey ahead of the upcoming negotiations. [ID:nL81007555]
"The process is to engage with the sounding group to try and reach agreement with the objective of issuing consent requests to the entire syndicate by the middle of June," Reece said.
Reece added there was "a lot of activity" in the company's plans to sell assets, with proceeds to be used to pay off debt.
Ineos was Britain's biggest private company by both sales and profit in 2008, according to The Sunday Times. (Additional reporting by Jane Baird; Editing by Karen Foster and David Holmes) ($1=.7254 Euro)