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Commerzbank EM Credit Notes: Alliance Oil - Constructive growth outlook but higher leverage

October 7, 2011 Commerzbank
Alliance Oil posted a strong operating performance during the H1 2011 period but heavy capex investments resulted in higher leverage. The company’s growth plans look quite constructive and today’s Q3 2011 operational update demonstrates that Alliance is making good progress on its production targets. In September, Alliance started commercial production in the Kolvinskoye field, its most prominent asset that is expected to double upstream production by end-2012. The modernisation of the refinery plant in Khabarovsk is moving according to plan and within budget, and once complete should balance the supply of higher-margin products and offset the impact from the new higher oil tax regime. Heavy capital investments continue to pressure cash flow and increase borrowings. As a result Alliance’s total debt to EBITDA ratio reached 3.2x, and we expect some further deterioration in leverage metrics. Alliance’s 2015 eurobond has been very volatile and the yield surged by more than 300bp over the last few weeks to 11.9%. While we believe Alliance has quite prominent growth prospects we currently take a neutral view on its 2015 eurobond as there is risk of further volatility in these turbulent times.

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  • Full name
    Alliance Oil LLC
  • Registration country
    Russia
  • Industry
    Oil and gas