The events accompanying the transformation of ALROSA, which is taking place from early 2011, fully confirm the prediction made in the authors’ previous publications on this subject. Moreover, in the analytical note "Making ALROSA a public company and ways to transform it" written by Yegor Yegorov and Yuri Danilov on November 2, 2010 and sent to the Prime Minister of the Republic of Sakha (Yakutia) and the National Assembly (Il Tumen), we assumed that the company would release 28% of shares to be added to the existing shares for a subsequent IPO. It was this decision that was taken at the company’s general meeting of shareholders and then reflected in the latest version of ALROSA’s Charter. Besides, we assumed that ALROSA’s shares would be privatized. At present, the shareholders are tackling the issue of privatization with a view to float some part of the stock owned by the Russian Federation and the Republic of Sakha (Yakutia) on the stock exchange.
Seven of the eight
While trying to solve this task, the Ministry of Finance of the Russian Federation (Fig. 1) suggests that the Government of the Russian Federation and that of Yakutia sell 7% each from their corresponding stakes in the company. At this stage, the Russian Federation Government suggests to reduce its stake from 51% to 44% making private 7%. The Republic of Sakha (Yakutia) will also sell 7% of its shares and bring its stake to 25%. However, this will affect the next stage, when the company is to carry out an IPO involving additional issue of 28% to the existing number of shares, as reflected in the latest version of the company’s Charter.
According to Ilya Yuzhanov, Chairman of the Supervisory Board of ALROSA, who spoke in an interview to the Vesti 24 TV Channel, "There are several points of view on the extent to which and how to privatize the shares. One option is to float a 14-percent stake including 7 percent owned by the Russian Federation and 7 percent owned by the Republic of Sakha (Yakutia). This option is supported by the Board of Directors of the company. For them, this is the most viable option. But this does not mean that it will ultimately be approved."
In our view, not a single share should be sold from the stake (32%) owned by the Republic of Sakha (Yakutia), since the republic may lose the blocking shareholding in case of a subsequent IPO, because the shares owned by the Yakut uluses (districts) are municipal property and not the property of the republic.
According to the option proposed by the authors (Fig. 2), the Republic of Sakha (Yakutia) may quite painlessly sell (privatize) 7% from the 8% of shares owned by the uluses (districts) of the diamond province. At the same time, the 32% of shares after the proposed additional issue of 28% of shares (in case of an IPO) will make a blocking stake of 25% + 1 share.
That is, the Republic of Sakha (Yakutia) must sell shares not from the stake owned by the republic (32%) but from the stake owned by the 8 uluses (districts) of the diamond province. Russia may sell up to 19% from its stake, i.e. leaving 32% in its ownership. In that event, in case of a possible IPO (involving an issue of 28% of additional shares to their existing number) the 32% will be diluted to 25% (32:1.28 = 25).
In this case, after an IPO, the Republic of Sakha (Yakutia) is guaranteed to have a blocking stake (25% +1 share), the uluses will have 0.1% of the company’s shares plus the proceeds from the free float (about $80 million at market value of their shares), Russia will have 34.3% and individuals and legal entities - 39.9%.
Yegor Yegorov, Doctor of Economics, Professor, Academician of the Academy of Sciences of the Republic of Sakha (Yakutia), Director of the Institute for Regional Economics of the North at the Ammosov North-Eastern Federal University
Yuri Danilov, Ph. D., Director of Department for Regional Subsoil Management Economics, Institute for Regional Economics of the North at the Ammosov North-Eastern Federal University
Fig.1. Distribution of ALROSA shares in line with the privatization option offered by the Ministry of Finance of the Russian Federation
Fig. 2. Distribution of ALROSA shares in line with the privatization option offered by Yegor Yegorov and Yuri Danilov
