Rapaport Magazine


By Svetlana Shelest
ALROSA Second Public Offering Is Done Deal

The ALROSA second public offering (SPO) deal that has been in the making since the beginning of 2016, finally took place in mid-July. The Russian government raised an estimated $828 million by selling a 10.9 percent stake in the country’s number one diamond mining company at the price of $1.03 per share. Prime Minister Dimitry Medvedev signed the final terms of the sale on July 11, signaling government approval, and the results were officially announced at a press conference held at the Moscow Exchange on July 12. Notification was also distributed via press releases and statements issued by the involved ministries and agencies.
   The sale was officially announced on July 6 by Alexey Ulyukayev, head of the Russian Ministry of Economic Development, which initiated the process in February. The bids were collected via the accelerated book-building process by the deal’s official bookrunners, Sberbank CIB and VTB Capital, two major Russian banks. The book was open for just two days before closing and oversubscribed by more than two times, according to a comment made by Ulyukayev to the Russian news agency TASS. The apparent swiftness of book building was explained by Boris Kvasov, director of equity capital markets at VTB Capital, in an interview to the Russian news agency Interfax as follows: “We wanted to protect the book from market risks. If the book stayed open for a week, anything could happen at such a turbulent time as this, potentially jeopardizing the deal.”

SPO Attracts Variety of Bidders
   The Russian Direct Investment Fund (RDIF), Russia’s sovereign wealth fund, is the only investor that has openly revealed its participation in the deal. According to media reports, RDIF, together with its co-investors from Europe, the Middle East and Asia, bought about half of the stock on offer. Russian investors accounted for about 35 percent of the bids, another 35 percent of the stock was claimed by investors from Europe, while bidders from the Middle East and Asia accounted for about 25 percent of the demand. The share of American bids shrank considerably from the time of ALROSA’s initial public offering (IPO) to 5 percent.
   In his interview to the Russian major business news channel RBC TV on July 12, ALROSA’s Vice-President and Chief Financial Officer (CFO) Igor Kulichik said there were two reasons for a reduced number of bids from the U.S. “First, there is a certain tension created by the sanctions, which is not a positive factor for the market. And second, many of the investment funds we’ve talked to said they would have loved to bid if it were not for the accelerated book-building process we had chosen,” he explained on air. An undisclosed source close to the bidding process earlier informed Interfax that the U.S.’s Oppenheimer Funds Inc. and Lazard Ltd. may be among the buyers of ALROSA’s shares again, after they had participated in the company’s IPO three years ago, acquiring over 2 percent of the stake.
   The sale leaves the Russian government in control of 33.1 percent of ALROSA’s stock, while the miner’s free float grows from 23 percent to 34 percent. The funds raised will replenish the state budget fund, according to Ulyukayev, who also confirmed that the government pledged not to sell off any more of the mining giant’s stock for 180 days following the SPO. Earlier in March, the minister said that a second round of ALROSA privatization might follow in 2017 or 2018, taking another 8 percent of the stock to the auction.
   The sale is generally assessed as successful by government officials and is said to be the largest privatization deal in Eastern Europe since 2013. It is also Russia’s first major privatization deal in the global market since 2014.

Rough Market Improving
   The company approached the sale reporting a major improvement in financial performance, which was achieved through an anti-crisis strategy developed in response to the industry crisis. ALROSA’s rough sales in the first quarter of 2016 increased by 34 percent compared to the same period in 2015, and the company’s first-quarter revenue totaled $1.6 billion, signifying a 37 percent year-on-year increase. The company’s earnings before interest, tax, depreciation and amortization (EBITDA) grew by 38 percent against the first quarter of 2015 and totaled $940 million, with EBITDA margin going up to 58 percent.
   As the company’s president Andrey Zharkov noted in a press statement covering the first quarter results, the achievements are telling of improving market conditions.

Article from the Rapaport Magazine - August 2016. To subscribe click here.

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