Tomorrow we will know the outcome of the issue of Alliance Oil Company shares in the amount of 100 million dollars and placement of convertible bonds of 225 million dollars. Alliance Oil, which is controlled by the family of the President of Group «Alliance» Musa Bazhaeva became the first Russian company that went to a public distribution of shares from the beginning of the crisis. Analysts believe that the company chose a good time for entering the market and will use the funds primarily for the liquidation of its short debts, which in the first quarter were just under 410 million dollars.
Alliance Oil announced the start of the open placement of convertible bonds for 225 million dollars and shares in the new issue in the form of Swedish Depository Receipts (SDR) for 100 million dollars yesterday. Code Listing of bonds, maturing in 2014, will take place on the Luxemburg Stock Exchange. The loan may be repaid in three years if the price of SDR exceeds 130% of the value of bonds. The papers provide a quarterly coupon rate which will be determined in the range of 6.75 – 7.5%. SDR is expected to remain listed on NASDAQ OMX Nordic. According to a source familiar with the situation, the book of applications will be closed today, it is passing without a price corridor, and the results of the deployment are scheduled to make public on Friday.
In 2008, Alliance Oil (up to May 28, was bearing the name of West Siberian Resources Ltd.; WSR) teamed up with NC «Alliance». The result was a vertically integrated oil company operating in both Russia and Kazakhstan. Its total proven and probable reserves amount to about 65 million tons, the current level of production is about 2.5 million tons of oil annually. By 2011, Alliance Oil plans to add over 4 million tons. The main processing asset is the Khabarovsk oil refinery, which adopted just over 3.3 million tons of oil in 2008. The net profit of WSR amounted to 50.5 million dollars in the first quarter of 2009, a 10% increase over the previous year. Revenue for that period decreased by 40% – from 549 million to 328 million dollars. In doing so, the profitability of WSR in EBITDA and net profit amounted to 30% and 15%, which are better than that of other Russian oil companies.
Alliance Oil demonstrated a good performance in the first quarter, and chose a good moment for the placement of SDR and bonds, says UniCredit Securities analyst Artem Konchin. The decision taken by the owners of the company to enter the market was done taking into account the results of the work, done from the beginning of the year, adds a source in the industry. In the face of oil price rising Alliance Oil may get even more value than stated, believes the analyst of IR «Veles Capital» Dmitry Lyutyagin. Accommodation at a low rate of 6.75-7.5% in the current situation is interesting to the company itself, as before domestic structures tried to take 9.5% annually. «To the investors its an opportunity to continue entering the capital of the company after the conversion of bonds, and a fixed premium of 25-30% which can be realized already within 1-1,5 years can be attractive to them», – considers Mr. Lyutyagin.
Funds received during the planned deployment will be spent on improving the balance sheet and liquidity of the company, as well as reducing short-term debts, expressed in the Alliance Oil. The company needs the proceeds primarily to refinance its short debts, said Artyom Konchin. In the first quarter the debts of Alliance Oil dropped by 27% and amounted to 629 million dollars, 65% of that amount (just under 410 million) is for short-term debts. A big portion of funds – up to 350 million – can go on investment in expanding production, as it is interesting in terms of lower prices for new licenses and settling trades, said Dmitry Lyutyagin. The main investment project of «Alliance» – the modernization of the Khabarovsk oil refinery – will continue through credit guarantees for 700 million dollars, which have already been received from the state insurance agency of Spain CESCE.
According to the current value of the shares of Alliance Oil, the market can be filled with an additional order of 7.3 million shares in addition to existing 161.5 million. This way, the shares of Bazhaev family, that controls nearly 53% of the company’s shares, will fall by slightly more than 2%.