The Russian authorities ask Interros run by Vladimir Potanin to become one of the anchor investors when ALROSA will float 14% of its stock, the Kommersant Daily says. The diamond miner’s block of shares to be offered for sale is estimated at RUB 24-48 billion. According to the Kommersant’s sources, officials fear that ALROSA’s capital may be joined by its foreign competitors, although the latter deny any interest in the securities. Analysts differ in assessing the attractiveness of ALROSA’s stock, noting that the state in any case will need a guaranteed loyal investor.
Interros received an offer to participate in a public offering to be carried out by ALROSA, as news agencies reported on Friday, citing sources. One source close to Interros confirmed this information. According to this source, the proposal is studied by the investment department of the holding and the decision will be made later. It was not specified what amount of shares was involved. Interros, ALROSA and Goldman Sachs (which is organizing the sale of the 7-percent federal shareholding in AROSA) refused to make official comments on Friday.
It is scheduled to place ALROSA’s shares on the Moscow Stock Exchange in the fourth quarter of 2013. It is expected that Russia’s Federal Property Management Agency (its block of shares is estimated at RUB 12-24 billion) and Yakutia’s Ministry for Property Management will sell 7% each. Until recently, the authorities of Yakutia opposed the sale, but on April 19 they passed the final reading of a bill to make some part of their stake in ALROSA public. Currently, the Federal Property Management Agency owns a 50.92% interest in ALROSA, Yakutia has 32%, its eight uluses (municipalities) - 8%, ALROSA’s subsidiaries - over 2% and 4-5% of the miner’s shares are put on free float.
Olga Dergounova, the head of the Federal Property Agency, taking part in the Russia-2013 Forum on Friday said that now "discussions are underway to develop an approach to this deal and define its pattern" with regard to the privatization of ALROSA, but the agency sets the task to carry it out in 2013. A source close to the Moscow Stock Exchange said he had no information about any changes in the plans to float the diamond miner. The Kommersant’s sources indicate that the proposal made to Interros came from “relevant agencies.” Officials fear this IPO may be joined by global competitors of ALROSA, which "may split the company up," so it decided to invite a "large domestic investor," the Kommersant’s sources explained. They do not know if there were any proposals extended to someone other than Interros.
Market participants believe that government officials could make such offers to Suleiman Kerimov (1%), Alfa Group and Viktor Vekselberg - the first one already owns an interest in ALROSA and the two others recently received $ 14 billion and $ 7 billion respectively from the sale of their stakes in TNK-BP. In May 2012, Suleiman Kerimov representing Nafta Moscow told Bloomberg, that his company leaves room for a possibility to take part in making private the controlling stake of ALROSA (this scenario was under consideration). Right now Nafta Moscow declines to discuss ALROSA, while Alfa Group left the questions from the Kommersant without reply and Viktor Vekselberg’s Renova said they knew nothing about such an offer, similar to the one received by Interros.
Sergei Goryainov, an expert of Rough & Polished, a diamond industry news agency, believes the assumptions regarding competitors are untenable. "Frequent comparisons of ALROSA with Petra Diamonds are inappropriate due to different scales, and as for De Beers, this company having many common customers with ALROSA has the opportunity to know all the specific features pertaining to the sales practiced by the Russian company,” Sergey Goryainov says. Therefore, in his opinion, it would be “just meaningless” for foreign players to spend $ 200-300 million for a shareholding in ALROSA giving no opportunity to take part in the company’s management. The representatives of De Beers and Petra Diamonds told the Prime News Agency in early April, that they did not plan to buy ALROSA’s equities. They did not reply to the questions from the Kommersant on Friday.
Sergei Phylchenkov of IFC Metropol said the proposal made to Interros does not mean the authorities have decided to abandon the idea of public offering. If the holding will agree, then it will just put up a high price. According to the analyst, the participation of Interros may be a good sign for other investors. Sergei Phylchenkov believes that as far as its value is concerned ALROSA has a growth potential exceeding 40%. Currently, the company’s market value stands at RUB 231 billion ($ 7.364 billion) and if its floating estimate is to be based on 7 EV/EBITDA (the latter’s forecast for 2012 being $ 2.15 billion, ALROSA itself was counting for this ratio in 2012) its capitalization could reach $ 10.9 billion. These figures are included in the maximum level of income planned by the government (7% for RUB 24 billion), so a 14-percent block of shares may be worth $ 1,527 billion. The Kommersant Daily spoke to several sources in the investors community, who said that at this time Interros had no available funds, as the holding went to expenses for the Olympic facilities. But soon Interros should get $ 867 million for the sale of a 2.84% stake in Norilsk Nickel to Millhouse and at least another $ 606 million in dividends from Norilsk Nickel for 2012.
Sergei Goryainov does not consider ALROSA to be a successful investment. "With a dividend yield of 3-4% ALROSA’s shares do not look an attractive instrument, and Interros is hardly interested, so the feeling is that we are talking about the sovereign's order," the expert said. The decision of government officials to attract Russian large-scale investors, in his opinion, may be caused by the fear that floating ALROSA will repeat the fate of the failed “people’s” IPOs of VTB and Rosneft. Right now one share of ALROSA is worth a little more than 31 rubles, the expert said, and it is likely that by the time the company will go in for public offering its stock may be driven to as high as 40 rubles per share, after which small investors may decide to lock in profits - and the company will turn cheaper. But Alexander Litvin of TKB BNP Paribas Investment Partners does not agree. “There are no similar companies in the market, and such giants as BHP Billiton are traded at a yield of 4%,” the analyst says. According to him, ALROSA attracts investors, since it is "an interesting case." Everything will depend on the offering price and how soon the company will get rid of gas assets with high debts. TKB BNP Paribas Investment Partners will consider the possibility of taking part in the company’s IPO, Mr. Litvin added.
