It is not worth waiting for additional floating of state-owned shares issued by ALROSA, the largest diamond producer by carat, in the next 2-3 years. This opinion was expressed by analysts polled by ITAR-TASS.
On Monday, ALROSA announced a two-week road show in the run-up to the listing of a 16- percent state-owned shareholding, which will end on October 28 after the offering price will be made public.
The price range for the company’s shares to be traded on the exchange is set between 35 to 38 rubles per share. Thus, the entire company is estimated to be worth about RUB 258-280 billion ($ 8-8.7 billion), while the 16-percent government stake may be priced at about RUB 41.2-44.8 billion ($1.28-1.39 billion).
Analysts of Finam, an investment consultancy, believe that in the next two weeks the company's shares will be traded at a lower level of the announced price range.
To date, ALROSA's market capitalization on the Moscow Stock Exchange is estimated at RUB 259.254 billion ($ 8.05 billion).
"We believe the price range of 35-38 rubles per share is quite high. Reducing the price by 10-15 percent to 32-33 rubles per share will attract more investors. However, according to our estimates, the offering price of 35-38 rubles per share suggests a moderate upside - 13-23 percent – with regard to our target price of 43 rubles per share," Oleg Petropavlovski, an analyst of the BCS Financial Group said.
At the same time, Sergei Filchenkov, an analyst of Metropol, a financial and investment company, believes that 35-38 rubles per share is quite a market reality assessment, despite the fact that it is somewhat lower than the price target previously announced by ALROSA. "It would be difficult for ALROSA to float its shares in the current market. At a time when the Russian government's plans for 2013 are underperforming it was of paramount importance to carry out this IPO, even with a slight decrease in prices," Filchenkov said.
Deutsche Bank analyst Georgi Buzhenitsa notes that today the market price of ALROSA shares is 38 rubles per share. "Perhaps the placement will stick to this margin. In any case, the current market value will be used as a guide. Further on, everything will depend on demand. ALROSA’s equities do not look expensive against the current market valuation," he said.
Also on Monday, First Deputy Prime Minister Igor Shuvalov told reporters that to ensure the stability of the market, the Russian Federation Government has no plans to make any decisions about the sale of additional stock of ALROSA within 180 days after the completion of the upcoming international offering of its shares on the Moscow Stock Exchange.
Oleg Petropavlovski believes that any additional offering of state-owned interest in ALROSA is hardly expected. "Theoretically, the government could still reduce its stake similarly to Yakutia down to 25 percent, but most likely this will not happen in the next 2-3 years," the analyst said.
Sergei Filchenkov agreed and explained: "So far, the government's position is to retain control. And investors did not presume that ALROSA would join the free market immediately, since earlier it was said that this could happen in 2016."
Regarding the dividend payments to be increased from 10 to 35 percent of the miner’s annual net income under IFRS, the analysts said that this move should attract investors.
"The increase in dividend payments to 35 percent of ALROSA’s net income under IFRS gives a promise to investors that their rate of return will reach nearly 5 percent at current market prices, which will create additional investment attractiveness for the company’s stock," Sergei Filchenkov said.
He added that increased dividends will hardly affect the implementation of investment projects. "ALROSA has quite a good strategy for the development of its deposits and raised funds will help reduce its debt burden, so the company has sufficient cash flows to fund the dividend payments and the investment program announced earlier," he said.
As of October 2, 2013 ALROSA’s largest shareholders were the Russian Federation, which owns approximately a 50.9 percent stake in the company, as well as Yakutia, which owns about 32.0 percent of its shares jointly with RIC Plus.
In early October, the world's largest diamond producer announced its intention to implement an international placement of 16 percent of its shares. ALROSA will offer to its would-be investors 515.55 million shares representing about 7 percent of the company’s authorized capital from the stake belonging to the Russian Federation, 7 percent from the stake owned by the Government of Yakutia and 2 percent (150.24 million shares) offered by Wargan Holdings Limited registered in Cyprus and controlled by ALROSA.
The shares will be offered to institutional and portfolio investors in Russia and the United States.
The 16-percent state-owned stake in ALROSA is valued at RUB 41.2-44.8 billion. The Russian Federation Government will not sell any additional amount of shares in the course of six months.
