Already this week the legislative obstacle which hinders ALROSA to become a public company may be eliminated. As RBC daily happened to know, on Wednesday the Yakut parliament deputies will debate amendments to their national law which make it possible to reorganize the diamond monopoly into an open joint-stock company. The next step is expected to be an IPO ventured by ALROSA, which may result in giving the company an opportunity to raise about $2 billion. According to RBC daily, Yakutia will probably have to accept a reduction of its stake in the company to 25% plus one share.
Earlier this year, ALROSA’s president Fyodor Andreev said that one of the most important tasks for the company was to place its shares on the stock-exchange. The point is that the company’s incomes during the crisis plummeted. In fact, the company was saved due to the Gokhran purchases of diamonds which generated 32.5 billion rubles for the company in 2009. It is noteworthy that according to IFRS in this case ALROSA’s total revenue in 2009 amounted to 77.95 billion rubles against 91.1 billion in 2008.
Although this year the world diamond market displays a period of revival, ALROSA has insufficient own funds to meet the investment program. The company predicts its revenue in 2010 at 3.28 billion dollars, while its debt level stands at 3.5 billion dollars. That said, it should be taken into account that only in 2010-2012 ALROSA plans to invest 25 billion rubles into the development of underground mining and expects to find 88 billion rubles for the Timir iron-ore project to diversify its business.
According to industry experts, ALROSA could raise about $ 2 billion by placing up to 20% of its shares during an IPO. But trying to bring its equities to the stock exchange the company is hindered by a legal obstacle: the law of Yakutia "On management and disposal of shares issued by Joint-Stock Company ALROSA which are a state property of the Republic of Sakha (Yakutia)" expressly saying that Yakutia’s state interests “are protected by the organizational and legal forms of the company as a closed joint-stock entity.”
To remove this restriction the deputies of the regional parliament have proposed to introduce amendments to the law (this document is available at RBC daily). The bill is to be considered by Yakutia’s State Assembly (Il Tumen) on October 6-7. The bill says that the republic’s interests will be “protected by the representatives of the republic in the administration and control organs of the company."
If these amendments will be passed they will open the way for ALROSA to the stock exchange, Alexander Pukhaev, a VTB Capital analyst, said. The diamond company’s spokesman said that changing ALROSA’s legal form is the business of its shareholders. He also stressed that the company needed to raise funds to implement its investment program for the construction of underground mines, as well as reduce its debt portfolio.
The most preferred option for ALROSA is an additional issue of shares. But in this case someone of the shareholders must agree to reduce its stake. "In all likelihood, it will be Yakutia,” Alexander Pukhaev says. “In terms of control 32% or a blocking stake of 25% plus one share are equivalent, while in return the company will get an opportunity to attract outside capital for its development." Moreover, the expert added, it is not a direct infusion of capital because a company’s market valuation makes it much easier to borrow.
Sergey Goryainov, an expert of the Rough&Polished industry news agency, also believes that Yakutia will not hold on to the size of its stake of 32%. "In addition, the uluses (administrative entities in Yakutia. - RBC daily) which now have 8% in ALROSA may want to reduce their stake,” he said. In his view, to keep a 51% stake in ALROSA the federal government may pay money for its share in the additional equity issue. "This is more profitable for the company, but actually earlier there was discussed a possibility to offer some assets,” he said. Alexander Pukhaev reminds that the federal state has already made concessions by arranging the purchases of diamonds by Gokhran, so now it would be logical for Yakutia to make a step forward to balance the situation.
According to Sergey Goryainov, ALROSA’s shares will be attractive to strategic investors, for example to BHP Billiton or Rio Tinto, as well as to banks working with mining companies.
