Today, the world's largest diamond producer ALROSA starts a road show for 16% of its stock to be floated on the Moscow Stock Exchange, the Kommersant Daily says. Basically, this includes the shares held by the Federal Property Management Agency and Yakutia. According to the daily, the price range has been set at 35-38 rubles per share, and if the venture will prove successful, ALROSA may raise about $ 1.3 billion. This is above its current quotes, but below what its management was pinning hopes on last May. The daily’s sources say that successful privatization of the miner’s shares is now more important for the State than their market price.
The news that ALROSA would start compiling a bid book for selling 16% of its shares was disclosed to the Kommersant by a source close to the deal. According to this source, the road show will be held on October 14-25 at the Moscow Stock Exchange, where the placement will be carried out, as well as in New York. A group of ALROSA managers flew to the city last weekend headed by Fyodor Andreev, the company’s president. A presentation of the diamond miner’s equities may also take place in London. The announcement of stock price is scheduled for October 25, while payments and buying-in for October 28-31.
The price range was set at 35-38 rubles per share. Thus, the company’s market capitalization could reach $ 8-8.67 billion, while its stock placement - $ 1.28 billion to $ 1.36 billion. Fyodor Andreev said in May that market estimates of ALROSA were "ranging from $ 9 billion to $ 15 billion," whereas Interfax reported that VTB Capital, one of the IPO organizers, estimated the stock to be floated at 38-44 rubles per share ($8.67-10 billion). According to the Kommersant, a source in the government said that the decision to lower the price range was dictated by the desire of the Russian Federation, being the largest shareholder of ALROSA, to carry out a successful placement of shares. "This is not only the largest privatization deal in the last six months, but the first IPO within the project to create an international financial center in Moscow," the source said.
ALROSA announced its plans to sell 16% of shares on the Moscow Stock Exchange on October 2. The Federal Property Management Agency and Yakutia’s RIC Polyus are to sell 7% each followed by ALROSA’s Cyprus-based subsidiary Wargan Holdings Ltd, which will put on the block another 2%. Goldman Sachs, JP Morgan, Morgan Stanley, VTB Capital and Renaissance Capital will act as bookrunners.
Dmitry Skvortsov, Senior Portfolio Manager at GPB Asset Management SA, said that international investors are cautious about investing in mining companies due to lower commodity prices, which would interfere with the placement run by ALROSA. "But if ALROSA will present itself as a unique company with a stable business that will generate good dividends, the story will be interesting to conservative investors, especially to those international," Mr. Skvortsov believes.
In the opinion of Alexander Krapivko, Investment Director at the Promsvyaz Management Company, the time to float was chosen correctly: the market at large is on a short-term rise. Oleg Petropavlovski of BCS says that interest towards the miner’s stock is great, "but all are worried about the price." If it will be closer to the upper limit, one half of investors may change their mind, the analyst believes. "Success depends on whether the issuer will give a discount to the price of traded shares,” Mr. Krapivko says. “Most likely, part of the funds raised will go to capital expenditures to maintain current production levels, which means that this floating does not promise any global improvement in the company’s performance." But Sergei Phylchenkov of Metropol, an investment and financial company, noted that ALROSA became cheaper in recent days on rumors that its placement may be run at a price of 34-35 rubles per share. At the end of MICEX trading on Friday the shares were worth 34.75 rubles, which is 5.8 % below the previous day's quotations. During the last week ALROSA’s stock fell by 10.2 %. Thus, right now the company is even cheaper than the bottom level of its price range.
That said, it should be noted that ALROSA, according to the Kommersant’s estimates, is traded lower than other public mining companies smaller in size. For example, ALROSA’s shares are worth about 3.7 EV/EBITDA, whereas this ratio for the stock of Dominion Diamonds (its market capitalization exceeding $ 1 billion) based in Canada is reaching 6.57; Jersey-based Petra Diamonds (worth $ 945.6 million) has it at 7.7, and London-based Gem Diamonds (worth $ 333 million ) - 5. Metropol believes that ALROSA’s stock has an upside potential of 32%. As a result, its floating prospects will largely depend on market conditions, Dmitry Skvortsov said. If the appetite for risk will decrease and markets will go down, it will be difficult to place the shares of ALROSA.
