The world’s largest diamond mining company ALROSA may carry out an IPO as early as next year, the Vedomosti daily writes. According to the newspaper, JPMorgan estimated the company at $ 7.3-9 billion. Meanwhile the Yakut parliament is gearing up to lift the last restrictions that prevent ALROSA from being transformed into a public company.
JPMorgan evaluated ALROSA at $ 7.3-9 billion excluding debt and offered a wider estimate within the range of $ 5 billion to $ 10 billion (the corresponding page of this presentation is available at the Vedomosti). These figures were confirmed to the Vedomosti by an ALROSA employee. He said that the study had been ordered by his company with the consent of the Russian Federal Property Management Agency. According to a source close to ALROSA, the estimate is so far very preliminary and the main work still lies ahead. The company employee added that the IPO could take place as early as 2011-2012. The company expects to sell a 20-25-percent stake for $ 1.5-2.3 billion. These funds will be spent to develop underground diamond mining.
ALROSA’s spokesman has offered no comments to this. But the company’s executives have long spoken of their intention to make the corporation public.
It is very difficult to evaluate ALROSA since it is a unique company, Sergey Goryainov, the expert of the Rough&Polished news agency, and Boris Krasnozhenov, the analyst of Renaissance Capital, emphasized. The previous estimates given to the company were much lower ranging from $ 2.4 billion to 6.4 billion. Interfax reported that ALROSA produced 32.8 million carats of diamonds in 2009. The main rival of ALROSA - De Beers - is not a public company, whereas for BHP Billiton and Rio Tinto diamond mining is only one aspect of their business. Harry Winston Diamond Corp. appears to be a public company which is the closest to ALROSA in terms of diamond output. But it accounts for 40% of what is produced at the Diavik mine in Canada - 2.2 million carats. Last Friday, the company was worth $ 918.4 million at the Toronto Stock Exchange. This means that ALROSA’s equities will be an exclusive offer for investors and will enjoy demand, Krasnozhenov summarized.
It is not the first year ALROSA is going to be traded on the stock exchange. Back in 2008, the then company president Sergei Vybornov suggested that the company would be ready to place its shares on the stock market "within 12 or 18 months” in London, Hong Kong and Toronto.
However, ALROSA is still a closed joint-stock company. The law of the Republic of Yakutia "On management and disposal of shares issued by Joint-Stock Company ALROSA" prevents it from turning into an open joint-stock entity. But on Wednesday the Yakut parliament, Il Tumen, will discuss amendments offering to exclude the phrase about the company’s legal form from the text of the law (the text of the amendment is available at the Vedomosti). The largest faction in Il Tumen – that of the United Russia Party (51 MP out of 70) - backs the idea of transforming ALROSA into an open joint-stock entity as the company needs money to maintain its output, Alexander Morozkin, the faction leader, told Interfax. Olga Fyodorova, the leader of the A Just Russia Party faction, is confident that the amendment will be adopted.
If ALROSA will manage to place up to 25% of the shares, the stake of Yakutia and its uluses (municipalities) could be reduced from 40% to 30%. There is nothing to worry about very much, the company employee says, because the republic will preserve a blocking stake, which means that key deals will not be possible without its consent. ALROSA needs to launch an IPO before 2013, Sergey Goryainov stressed. The fact is that by this time open diamond mining at the company’s biggest mine Udachninsky (now accounting for nearly 40% of its output) will run dry and ALROSA will have to build an underground mine. The company estimated its total investment in underground mining at $ 3-4 billion. To attract such funds from banks is beyond ALROSA’s ability: at the start of this year ALROSA’s debt ran at $ 3.8 billion, and the company planned to cut it down to $ 2.1 billion only by 2014. So going to the stock exchange gives ALROSA a chance to maintain its global leadership, Goryainov summarized.
No one in the government of Yakutia was ready to discuss a possible IPO to be ventured by ALROSA.
