OREANDA-NEWS. June 15, 2009.

Event.  On Friday, Alliance Oil placed 10m SDRs in the open market and increased its equity by 5.83%, raising the total number of shares to 171.5m. The issue price for 1 SDR was US12.5, with the company’s proceeds from the placement reaching US125m. In addition, the company simultaneously placed a US265m convertible bond issue, which will be due in 2014, reported the press-centre of OTKRITIE FC.

View. The company’s SDRs were placed at a small premium (2.4%) to their last market price (US\\$12.2). We believe that Alliance Oil could use the proceeds from these two transactions (US\\$390m) to reduce its short-term debt. The company’s 1Q09 debt-to-equity ratio was cut from 94% to 92%, however, this ratio is still high. Moreover, its debt/EBITDA ratio rose in the first quarter of 2009 from 5x to 7x, QoQ. According to our estimates, Alliance could reduce its debt-to-equity ratio to 64% and Debt/EBITDA to 3x by the end of the year.

Valuation. The company’s stock trades on P/E at a substantial premium to market peers. We view this placement at a premium as the sign of high investor confidence in management.

Action. The placement of Alliance SDRs at a premium could be a short-term positive for the market peers and boost investor sentiment. We regard this news also as a short-term positive for Alliance’s stock, while downgrading our long-term target price of Alliance Oil stock from US24 to US22.6 per share, a function of the company’s increasing equity. We reiterate our Buy recommendation.