47
Litigation against the Group could adversely impact its business.
The Group is subject to risks relating to legal and regulatory proceedings to which it or its subsidiaries, associates and
joint ventures are currently a party (including in connection with the counter claim initiated by OJSC Ukrnafta (Ukraine)
(“
Ukrnafta
”) in 2009 in response to the commencement of arbitration proceedings by Carpatsky Petroleum Corporation
(“
CPC
”), a member of the Group) or which could develop in the future. See “
The Group’s business—Legal and
arbitration proceedings—Texas counterclaim
.”
Current or future actions of the Group may result in material litigation or disputes in the future. Defence and settlement
costs with regard to litigation and disputes can be significant, even in respect of claims that have no merit. Damages
claimed against the Group under any such litigation or dispute may be material or may be indeterminate, and the
outcome of such litigation or dispute, including reputational damage, may materially impact on the Group’s business,
prospects, financial condition and results of operations.
Risks relating to the Group’s financial profile
The Group’s significant leverage may make it difficult for the Group to service its debt, including the Notes, and
operate its business.
The Group is, and following the issuance of the Notes, will continue to be, highly leveraged. As at 31 March 2014, after
giving effect to the issue and sale of the Notes and the application of the proceeds thereof as described under “
Use of
proceeds
,” the Group would have had total borrowings in the amount of $364.8 million. See “
Capitalization.
” The
degree to which the Group will remain leveraged following the issuance of the Notes could have important consequences
to holders of Notes offered hereby, including, but not limited to:
making it more difficult for the Group to satisfy its obligations with respect to its other debt and liabilities;
increasing the Group’s vulnerability to, and reducing its flexibility to respond to, general adverse economic and
industry conditions;
requiring the dedication of a substantial portion of the Group’s cash flow from operations to the repayment of
principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow, and limiting the
ability to obtain additional financing to fund working capital, capital expenditures, acquisitions, joint ventures
or other general corporate purposes;
limiting the Group’s flexibility in planning for, or reacting to, changes in its business and the competitive
environment and the industry in which the Group operates; and
placing the Group at a competitive disadvantage as compared to its competitors, to the extent that they are not
as highly leveraged.
Any of these or other consequences or events could have a material adverse effect on the Group’s ability to satisfy its
debt obligations under the Notes.
The Group and its subsidiaries may incur substantial additional indebtedness in the future, including in connection with
any future acquisition. Although the Indenture will contain restrictions on the Group’s ability to incur additional
indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain
circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be
substantial. In addition, the Indenture will not prevent the Group from incurring obligations that do not constitute
indebtedness under those restrictions. If the Group or its subsidiaries incur new debt or other obligations, the related risks
that the Group now faces, as described in “
—The Group’s significant leverage may make it difficult for the Group to
service its debt, including the Notes, and operate its business
”, and elsewhere in these “
Risk factors
”, could intensify.
For further information regarding the Group’s substantial leverage and for more information about the terms of the
Group’s indebtedness that will be outstanding following the Refinancing, see also “
Management’s discussion and
analysis of financial condition and results of operations
” and “
Description of other indebtedness.
”
Despite the Group’s level of indebtedness, the Group and its subsidiaries will still be able to incur significant
additional amounts of debt, which could further exacerbate the risks associated with the Group’s substantial
indebtedness.
The Group and its subsidiaries may be able to incur substantial additional debt in the future. Although the Indenture
contains restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant
