Russia Sells Stake in Diamond Company Alrosa to Cut Budget Deficit

Wall Street Journal, 11.07.2016

MOSCOW—Russia has sold a stake in Alrosa Co., the world’s largest diamond producer, the first of what officials say could be a series of major state-asset sales aimed at shoring up the country’s budget, which is suffering from weak prices for Russia’s main export, crude oil.

The placement in Moscow, announced Monday, is the largest state-asset sale in almost three years, as the government seeks to kick-start sales that could include stakes in oil giant Rosneft, shipping company Sovcomflot and oil producer Bashneft.

“We hope that all or part of the companies will be sold by the end of the year in order to finance the deficit of the federal budget,” said First Deputy Prime Minister Igor Shuvalovsaid.

But President Vladimir Putin has tasked the government with keeping the budget deficit under 3% of gross domestic product, sparking a fresh push to sell stakes in large companies. Russia’s economy is struggling after Western sanctions were imposed in response to Moscow’s invasion of Ukraine and due to weak crude oil prices.

The government placed a 10.9% stake in Alrosa in Moscow at 65 rubles per share, bringing 52.2 billion rubles ($814 million) to the budget, officials said Monday. That represents a 3.8% discount to Friday’s closing price.

Interfax news agency cited Russian Economy Minister Alexei Ulyukayev as saying the book for the deal was more than twice oversubscribed.

Around 35% of demand came from European investors, 35% from Russia, 25% from the Middle East and Asia and 5% from the U.S., said Boris Kvasov, director of equity capital markets at VTB Capital, which co-organized the placement.

The Russian Direct Investment Fund, a state investment fund, and co-investors acquired around 50% of the placement, according to a person familiar with the placement. Co-investors included funds from the Middle East and Asia, and RDIF’s participation was “significantly smaller” than that of the investors it attracted, the person said.

Mr. Shuvalov, the government’s point man on asset sales, said a stake in Bashneft could be sold next, followed by part of Rosneft, the world’s largest listed oil producer, Interfax reported. Chinese and Indian officials have expressed an interest in the Rosneft stake.

Still, Mr. Shuvalov said a stake in state-controlled lender VTB Bank—previously touted for sale—wouldn't be sold this year, according to Interfax.