ALROSA’s successful sales in the last four months (around $855 million without its sales Gokhran) suggest that the company has seriously improved its marketing policy. This circumstance as well as the company’s successful disposal of its non-core oil-and-gas assets and readiness to trim the obviously bloated staff point to a higher quality of corporate management. These are necessary steps along the way to decrease its debt burden and increase its investment appeal, but they will hardly be sufficient without solving the long-felt basic problem – transforming ALROSA into an open joint-stock company.
From the moment of its inception in 1992, ALROSA has in many aspects inherited the corporate ideology of the Soviet-cut Yakutalmaz Company, de facto remaining a satellite of De Beers which allowed it to exist comfortably in the environment of a cartel-modeled diamond market. During that period the shell of a closed joint-stock company permitted to preserve integrity of the research-and-production diamond-mining complex created in the USSR and avoid the notoriously negative consequences of the first wave of privatization. But when the cartel pattern began gradually overwhelmed by competition, ALROSA could not find an adequate answer to this challenge and only high world prices for rough diamonds, in many cases heated by speculative demand, allowed the company to produce an illusion of successful existence. The crisis has put heavily debt-saddled ALROSA on the brink of technical default.
The timely and massive support rendered to ALROSA by the state in 2008 and 2009 was a bailout for the company. However, according to the estimates submitted by the government to the State Duma of the Russian Federation, the budget deficit in 2010 will amount to 2 936.9 billion roubles and, according to the Minister of Finance, Russia’s borrowings from the World Bank may reach from $2 to $4 billion. Clearly, under such circumstances state support cannot be infinitely used to maintain ALROSA alive. The company should have an opportunity to attract funds to the industry and use its significant investment potential.
But the legal mode of a closed joint-stock company does not permit even to give an adequate estimate of ALROSA: while preparing an amicable agreement between the Russian government and Yakutia professional appraisers were essentially different in their opinions varying their estimates from $2.4 billion up to $6.4 billion. Virtually there is no civilized mechanism for circulating ALROSA’s shares and their market value is uncertain. This brings about commonly known difficulties for minority shareholders currently wishing to sell their stock, but the main thing is that all this affects creditors’ and investors’ confidence impeding to position the company as an open and transparent business entity. The existence of a “grey” market dealing in ALROSA’s stock is causing serious damage to the company’s reputation.
The problem of transforming ALROSA into an open joint-stock company has already been discussed for many years. Since the company was established before the federal “Law on Joint-Stock Companies” (01.01.1996), the latter’s obligatory requirement to transform closed joint-stock companies having more than 50 shareholders into open joint-stock companies bears no relation to ALROSA. Thus, it is not obligatory for the company, but it has the right to do so. This right can be implemented by a vote of no less than 75% of the company’s shareholders at a general meeting. ALROSA’s controlling stake, which is 50.9256% of its stock, belongs to the Russian Federation represented by the Federal Agency for State Property Management; in case all the shareholders will be present at the general meeting, it will make 139 000 votes out of 204 000. The blocking stake - 32.0002% of shares - belongs to the Republic of Sakha (Yakutia) represented by the Republic’s Ministry for Property Relations. It means that to transform ALROSA into an open joint-stock company the two largest shareholders are required to reconcile their positions. However, there is a resolution of the Yakut Parliament passed in 2005 saying that organizationally and legally preserving ALROSA as a closed joint-stock company meets Yakutia’s state interests. “The state interests of Yakutia” are in this case only a reflection of the now absolutely irrelevant four-year-old intra-corporate tussle and are very wide of the present crisis realities in the diamond market. But formally, this resolution remains in force and may oblige the shareholder representing the Republic of Yakutia to vote against ALROSA’s transformation into an open join-stock company.
The attention paid by the Yakut shareholder to ALROSA is obvious, since the company remains the main source of Yakutia’s budget revenue. But making the company open does not at all means any change in its stock proportions held by its major shareholders and stipulated by the amicable agreement as of 19.12.2006; this creates conditions to increase ALROSA’s market value. Taking into account the current debts of ALROSA, the federal authorities and Yakutia do not most likely have any potential objections to raise the level of ALROSA’s capitalization by contributing financial assets on the one hand and material assets on the other. But to assess the necessary scale of additional plough-back without an objective estimate of the company’s current value is practically impossible. ALROSA’s additional capitalization is necessary to solve the key problem of re-structuring its huge debt liabilities which consequently means that this company has unbiased interest in turning “open.”
Sergey Goryainov, Rough&Polished
