Western funds are willing to spend $ 450 million for half of issued shares
By Anatoli Dzhumaylo and Pavel Aksenov
(kommersant.ru) - As the Kommersant Daily came to know, the preliminary price of the 10.9% stake in ALROSA to be floated could reach RUB 57 billion ($ 889 million). Three minority shareholding funds, OppenheimerFunds, Lazard and Genesis, may become anchor investors, according to Kommersant’s sources, as they are willing to spend about $ 450 million to buy a 5.5% stake in the diamond miner. Russia-based non-state pension funds are being pro-actively attrated to take part in the company’s SPO, including the funds of the placement organizers, which are Sberbank and VTB. The decision regarding this equity offering is to be made this week at a meeting with Igor Shuvalov, First Deputy Prime Minister.
Long-term investors, which have given prior consent to participate in the SPO of ALROSA on the Moscow Stock Exchange, may accumulate 70% to 100% of the 10.9% stake in ALROSA placed by the Federal Property Management Agency, as Interfax informed on Friday citing two sources close to the deal. According to these sources, ALROSA’s portfolio investors, including OppenheimerFunds and Lazard, confirmed their desire to participate. It is not expected that non-state pension funds will be pushful in taking part in this deal, said a source of Interfax, adding that VTB and Sberbank, the placement organizers, “are working with their ‘retirees’” convincing them that ALROSA is a unique asset for the stock market."
According to Kommersant’s sources, the offering price being currently discussed for ALROSA’s stock stands at 71 rubles per share and the 10.9% shareholding in the company is estimated at RUB 57 billion ($ 889 million). On Friday, the diamond miner’s stock closed at 68.5 rubles on the Moscow Stock Exchange, while in May it was traded at 72-73 rubles per share (peaking up to 78 rubles) and in June it averaged at 70 rubles per share. The Kommersant’s sources say that three funds, which took part in the IPO of ALROSA in 2013 - OppenheimerFunds (owns a 3.05% stake in the company, according to Bloomberg), Lazard (0.99%) and Genesis (0.86%, part of AMG Group), – are to be anchor investors.
They say that each of them plans to buy out about $ 150 million worth of shares (that is, they can gain additionally a 1.84% interest each) and that the remaining stock can be bought by non-state pension funds and other funds. Another source of Kommersant insists that “it is too early to speak about the price, as it will be defined during the book-building.” According to this source, there is "a wide range of Russian and foreign institutional investors" interested in the shares of ALROSA.
"We are interested in the acquisition of shares in ALROSA, but the details of a possible transaction can be discussed after we have all the terms of this sale", Evgeny Yakushev, President of the European Pension Fund Board of Directors (Safmar Group) told Kommersant. "We will participate in case the terms are attractive and one of which is if ALROSA shares will be sold at a price not higher than the market," Nikolay Sidorov, CEO of Buduschee, a non-state pension fund said. Kirill Dmitriev, the head of the Russian Direct Investment Fund (which bought a stake in ALROSA taking part in its IPO in 2013, but sold it this year) spoke of his fund’s "significant interest" towards the diamond miner’s SPO "together with foreign partners." The Ministry of Economy, ALROSA, OppenheimerFunds and Lazard declined to comment, while the Finance Ministry and AMG did not respond to the inquiry of Kommersant.
On June 28, 2016, Igor Bulantsev, the acting head of Sberbank CIB (which is the Russian government’s adviser on ALROSA’s SPO) stated that "so far, there are no changes in the plans to carry out the deal involving ALROSA in July." The sources of Kommersant say that as early as this week, First Deputy Prime Minister Igor Shuvalov will hold a meeting on this subject and if Sberbank will confirm available solid demand for at least 70% of the company’s SPO, he can issue a resolution saying the placement is advisable, after which the organizers will launch an accelerated book-building. This will allow new investors and those who will build up their block of shares during the SPO to earn on dividends from ALROSA for 2015 (the shareholder register will close on July 19, 2016), said one of the Kommersant sources. The dividend policy of the company requires payment of 35% of its net profit, but this year, ordered by the government, ALROSA will pay 50% of its profits for the last year, or RUB 15.39 billion. The administration of Igor Shuvalov and that of Sberbank CIB declined to comment.
Sergey Donskoy of Societe Generale said that the proposed offering price of ALROSA at 71 rubles per share "allows investors to bargain for a decline in price," because it implies a small discount to the quotations in May and June. Societe Generale sees potential growth in the value of ALROSA’s securities to 85 rubles per share in the spring of 2017. Oleg Petropavlovsky of BCS indicates that the price of 71 rubles per share is close to the expectations already voiced by the Ministry of Finance and Ministry of Economy with regard to this placement (more than RUB 50 billion and about RUB 60 billion, respectively). It is a good price for anchor investors, the analyst says: BCS estimated that ALROSA shares have an upside of 20-30%, if the situation in the diamond market will not deteriorate.
In the opinion of Mr. Donskoy, there will be no such volatility in diamond prices in 2016-2017 as in 2015, because diamond and jewelry manufacturers cleared their inventories of excessive rough. However, he reminds that ALROSA reduced its production plans for 2016 from 39 million to 37 million carats and the prospects for higher diamond output in 2017, as well as higher dividends will depend on how well the company will be able to reduce stockpiles. From the standpoint of long-term strategy pursued by the company, there should be no surprises awaiting investors: the initiatives to attract ALROSA to creating a diamond-cutting cluster in the Far East or to take part in the development of the Sukhoi Log gold field look like being introduced from the outside, not initiated by the company’s management. Oleg Petropavlovsky agrees that ALROSA should not change its strategy significantly: keeping this strategy intact was the basis for agreements on joining the company by Western funds.
