ALROSA, the world's largest diamond producer, has announced the imminent placement of 16% of its shares on the stock exchange, Kirill Yakovenko writes in a commentary published by the Izvestia Daily. Apart from the expected sale of a 14-percent stake owned by the Federal Government and the Republic of Sakha (Yakutia) in equal proportions, another 2% of shares will be placed by ALROSA through its subsidiary, Wargan Holdings Limited. Based on current prices, the sale of 16% will allow the owners to earn a total of about RUB 45 billion.
The appointed organizers of the IPO are Goldman Sachs, JP Morgan, Morgan Stanley, VTB Capital and Renaissance Capital. The company’s shares are planned to be sold in Russia and abroad (presumably on the London Stock Exchange). The terms and conditions of this free float are not yet known. Fyodor Andreev, president of the diamond company, said that "the offering will expand the issuer’s access to the international capital markets and help to unlock the value of the company."
The market reacted positively to the company's plans driving up its stock traded on the Moscow Stock Exchange by more than 7% to 38.8 rubles per share on Wednesday, increasing the miner’s capitalization to RUB 283.5 billion. Based on this estimate, 16% of the company’s shares are worth RUB 45 billion.
However, experts believe that the free float price may be higher: according to sources in the financial community, the price range may take its shape in the next two weeks and make up 36-46 rubles per share. Besides, it is expected that the placement will be completed by the end of October.
Mikhail Smirnov, an analyst of Metropol, believes that the offering price will be about 40 rubles per share, or approximately at the level of its current market valuation.
The company will get only a small part of the funds raised during the IPO: the sale of its 2-percent stake can bring about RUB 6 billion. ALROSA intends to use the earned money to decrease its debt, which reached almost RUB 130 billion. It should be noted that ALROSA raked in about RUB 82 billion in the first half of 2013 under IFRS compared with RUB 76.5 billion a year ago. Its net income, however, fell from RUB 16.9 billion to 14.6 billion.
“The company's debt does not seem excessive and it could do without an IPO,” Sergey Goryainov, an analyst of the Rough&Polished News Agency says.
The expert points to the fact that ALROSA is steadily improving its financial performance, including through the sale of non-core assets. Thus, last week the company announced the sale of its oil and gas assets to Rosneft for $ 1.38 billion.
At the same time, Sergey Goryainov fears the company’s stock may lose in price after placement.
“We cannot exclude repetition of the so-called People’s IPOs. The shares on the Stock Exchange may be revved up to 42 rubles a piece during the initial placement and then their price will drop to 26-30 rubles,” he adds.
The instability of the diamond market is indirectly indicated by the fact that purchases of rough diamonds from ALROSA in 2012 accounted for over 95% of the overall spend by Gokhran (Russia’s state repository) for precious stones and precious metals (RUB 9.49 billion). Initially, Gokhran planned to buy diamonds worth up to RUB 4 billion in 2012, but later redistributed the funds earmarked for precious metals in favor of diamonds. It was the time when ALROSA appealed to the federal government for support, arguing the need for it was due to the decline in demand in the global diamond market.
Olga Dergounova, The head of the Federal Property Agency said that the partial privatization of the company is a significant step in the implementation of the state policy in the area of reducing the state's share in the economy of Russia.
Olga Dergunova, Head of the Federal Agency for State Property Management, said that the company’s partial privatization is a landmark step in the implementation of the government’s policy of reducing the state’s role in the economy.
However, the state will retain a controlling stake in ALROSA even after the IPO. Although the interest of the federal government will be reduced below the control level (now its ownership is 50.9 %), but with the package belonging to Yakutia, the state will still hold nearly 69% of the diamond monopoly.
