Alrosa public offering raises $1.3bn

Financial Times, 29.10.2013

Alrosa, the Russian diamond monopoly, has raised $1.3bn in a Moscow public offering as the Russian government pushes forward with its $15bn privatisation programme.

The offering was backed by US funds including Oppenheimer and Lazard, as well as The Russian Direct Investment Fund, Russia’s $10bn sovereign wealth fund.

About four-fifths of demand for the offering came from outside Russia, according to Olga Dergunova, director of Russia’s Federal Property Management Agency, which is running the privatisation programme.

The deal is the latest in what is expected to be a new spate of equity offerings by Russian companies. Last week TCS, the Russian credit card company, floated in London in a $1.1bn IPO, while other offerings by companies such as food retailer Lenta are expected to follow.

Alrosa, the world’s largest diamond producer by volume, was among the most highly anticipated deals of the privatisation programme given the lack of pure-play diamond stocks on the global market and the company’s size. According to Kimberley Process, the UN-backed body to stop the trade in “conflict diamonds”, the company produces over a quarter of the rough diamonds in the world. DeBeers, Alrosa’s closest rival, is now a part of London-listed Anglo American.

The Russian company priced its shares at Rbs35 each – the very bottom of its intended Rbs35-Rbs38 price range but above Alrosa’s average share price of Rbs32-Rbs33 in the three to six months before the deal was announced. The deal gives Alrosa a market capitalisation of $8.1bn.

In an interview with the Financial Times, Ms Dergunova defended the government’s decision to shoot for a higher intended price range than originally planned and also the involvement of state-backed RDIF in a privatisation deal.

RDIF helped “in attracting investors to come to the book . . . The name [RDIF] is really attractive,” Ms Dergunova said. She added that RDIF had bought a relatively small portion of the offering. According to the fund, it bought the stake alongside “a consortium of foreign institutional investors from North America, Middle East, Western and Northern Europe and Southeast Asia”.

Russia’s government has said that it will do all its privatisation offerings on its newly merged Moscow Exchange, a move meant to help foster a domestic investor base and also convince privately owned Russian companies to raise capital at home as opposed to abroad in London or New York.

Speaking at the Moscow Exchange on Monday, Igor Shuvalov, Russia’s first deputy prime minister, said that the success of the Alrosa deal showed that the government had been right to conduct the share offering in Moscow.

“Both the oversubscription and the quality of the placement shows it was a good placement. Investors such and Oppenheimer and Lazard are evidence of the fact that the deal was very successful,” he said.

On Monday Alrosa’s shares rose 0.6 per cent to Rbs35.15. Following the deal the Russian government now owns 43.9 per cent stake in the company, after selling a 7 per cent stake. The regional government of Yakutia – the region where Alrosa’s main operations are based – also sold 7 per cent and now holds 25 per cent of the company. The company itself sold a 2 per cent stake in the form of treasury shares and plans to use funds from the sale to pay down debt.

Goldman Sachs, JPMorgan, Morgan Stanley and VTB Capital were joint global coordinators and joint bookrunners on the offering. Renaissance Capital was a joint bookrunner.