Ineos bonds up as confidence builds for debt talks

* Euro bond for 2016 at 25 pct May 20 vs 7 pct April 20

* CFO says Friday deadline not big obstacle to get debt deal

By Tom Freke

LONDON, May 21 (Reuters) - Bonds in Ineos Group [INEOS.UL], the British chemicals giant, have surged in value over the last month on investor confidence the company will be able to survive tough negotiations on its loans.

Bank lenders have until Friday to decide whether to give the group, which owes banks and bondholders 7.5 billion euros ($10.34 billion), extra time to hold restructuring talks. [ID:nL6187428]

Major lenders to Ineos include funds Alcentra, Harbourmaster, Eaton Vance (EV.N) and Carlyle [CYL.UL] as well as banks Lloyds (LLOY.L), Barclays (BARC.L) and Bank of America (BAC.N), banking sources have told Reuters Loan Pricing Corp.

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. "The mood shifted about three or four weeks ago, and the bonds started to rally," helped by the general tightening of corporate bond spreads, the trader said.

However, current bond prices and the company's weak "Caa2" credit rating from Moody's, still signal big worries about Ineos's credit risk.

At the start of the year, investors in the firm were rocked by news of slumping demand for chemicals products and LyondellBasell [ACCEIN.UL], the world's third-largest petrochemicals company, filing 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 added that the company was interested in cutting the group's debt, but that could only happen with the approval of lenders.