Alrosa SPO begins as first gem of new Russian privatisations

Alrosa SPO begins as first gem of new Russian privatisations
State stakes are not forever: Russia starts new privatisations with 10.9% of Alrosa.
By bne IntelliNews July 7, 2016

The Russian government kicked off its renewed privatisation drive on July 6 with an offering of 10.9% in state-diamond producer Alrosa that is intended to help plug gaps in the federal budget this year.

"Today, the Russian Federation offered for the sale 10.9% of the ordinary shares of Alrosa, which are under federal ownership," Interfax cited Economy Minister Alexei Ulyukayev as saying.

The proceeds from the sale of the stake will be used for budget expenditures, the minister added, following months of preparation to sell this and other stakes in major Russian companies. The government will not take any decisions on the further sale of Alrosa shares within 180 days after the announcement of the offer's price, Ulyukayev added.

Earlier it was reported that the pre-placement price of 10.9% in Alrosa could reach RUB71 per share, or RUB57bn (currently $892mn). The company has a total market value of almost $8bn.

Accelerated book building began immediately, Alrosa said in a regulatory filing. The state is due to decide on the deal on July 8 after the organisers, state banks Sberbank CIB and VTB Capital, gather information on investors' price demands, a source close to the offering told Bloomberg.

The Kremlin started the new round of privatisations with one of its strongest assets. Alrosa reported a record profit of RUB49.2bn in January-March, showing that it managed to more than offset last year's mine depletion and retained its status as the world's largest company by resource base, topping Anglo-American rival De Beers. 

Alrosa now "has all chances of becoming the new benchmark in the Russian metallurgy and mining sector after the SPO", analysts of Russia's BCS investment company wrote in a note to clients on July 7, recommending participation in the privatisation.

Meanwhile, Alrosa's share price grew by almost 25% this year. At the start of the July 7 trading session, the company's stock fell from RUB69 to RUB68.1 per share. After the sale of the stake the company's free float will grow from 23% to 34%.

Alrosa also plans to pay out $232mn in dividends for 2015 of its net income of $501m.

Rosneft and Bashneft are the other frontrunners for sale in 2016. The Kremlin is also considering reducing state stakes in Russian Railways, Aeroflot, Sovcomflot and state-controlled lender VTB. The sale of these state assets are aimed to bring RUB1 trillion ($15.5bn) to the budget.

At the end of 2015, Deputy Finance Minister Alexei Moiseev said Russia will sell part of Sovcomflot, one of the first three companies prepared for the sell, in 2016 "no matter what". The government expects to earn RUB24bn from the placement. 

Later, however, Russian President Vladimir Putin said state assets will not be sold below the market price, and in February Putin placed stricter conditions on the privatisation process. "We need to take market conditions and tendencies in the account," the president told a government meeting, adding, "we won't sell at give-away prices, without particular benefit to the budget".

The privatisation drive arose last year on the back economy recession and an order from Putin to narrow the deficit gap to 3.3% by the end of 2016. 

However, the government found itself in a situation where it has to resort to privatisation to boost budget revenues amid adverse market conditions. It is reluctant to weaken its presence in business, but must now step back as the state reserve funds show the strain of unreplenished spending over the past two years. The return of former finance minister Aleksei Kudrin as a presidential economic adviser also marks a reinvigorated market-orientated approach.  


  2014 2015 2016E 2017E
Financials, $ mln        
Revenues 5,358 3,667 3,639 4,057
EBITDA 2,528 2,063 2,064 1,993 1,814 2,137
EBITDA margin 47% 54% 50% 53%
Net income -464 501 965 1,285
EPS (adj), $ 0.2 0.18 0.15 0.18
Div/share, $ 0.03 0.02 0.05 0.06
Valuation, Gearing and Yield        
EV/EBITDA 4.2 5.5 5.8 4.4
P/E 5 6 7.5 6.1
P/CF 3.8 6.6 6.4 3.9
Net debt/EBITDA 1.2 1.4 1.3 0.5
Dividend yield 2.90% 2.20% 4.20% 5.50%
Revenues 1% -32% -1% 11%
EBITDA 12% -21% -9% 18%
EPS (adj) 26% -7% -21% 23%
Main Shareholders      
Russian Federal Property Management Agency 43.90%      
Republic of Sakha 25.00%      
Municipal districts of Republic of Sakha 8.00%      
Free float 23.10%      
ALROSA 1Q16 operating results
  1Q15 2Q15 3Q15 4Q15 1Q16 Q-o-Q y-o
Total diamond production, '000 cts 8,385 9,629 11,634 8,612 8,189 -5% -2%
Aikhal 2,596 2,676 3,849 3,201 2,686 -16% 3%
Mirny 1,941 1,922 1,509 1,536 1,808 18% -7%
Udachny 1,349 1,454 362 1,132 1,090 -4% -19%
Nyurba 2,048 1,152 2,064 2,245 2,160 -4% 5%
Severalmaz 450 488 514 498 445 -11% -1%
Almazy Anabara and Nizhne-Lenskoye Ð 1,937 3,336 Ð Ð Ð Ð
Total diamond sales, mln cts 9 9 4.9 7.1 12.1 70% 34%
Gem-quality 7 5.6 3 4.1 8.9 117% 27%
Non-gem quality 2 3.4 1.9 3 3.2 7% 60%
Average diamond selling price, $/ct 127 114 115 100 109 9% -14%
Gem-quality 161 176 182 166 146 -12% -9%
Non-gem quality 8 11 9 10 7 -30% -13%
Revenue from rough diamond sales*, $ bln 1.1 1 0.5 0.7 1.3 91% 19%
* calculated revenues in 1Q16 based on reported diamond sales prices, volumes and the product mix.        
Source: Company, Sberbank CIB Investment Research        


ALROSA 2Q15 IFRS results, $ mln
  2Q14 3Q14 4Q14 1Q15 2Q15 Q-o-Q y-o-y 2Q15E A/E 2Q15C A/C
Revenues 1,371 1,159 1,257 1,199 1,086 -9% -21% 1,107 -2% 1,091 -1%
EBITDA 608 511 585 689 523 -24% -14% 531 -1% 524 0%
EBITDA margin 44% 44% 46% 57% 48% -9 pp 4 pp 48% 0 pp 48% 0 pp
EBITDA, adjusted 580 512 669 694 511 -26% -12% - - - -
EBITDA, adj. margin 42% 44% 53% 58% 47% -11 pp 5 pp - - - -
Net income, adjuted 317 174 212 436 338 -23% 7% - - - -
Net adjusted margin 23% 15% 17% 36% 31% -5 pp 8 pp - - - -
C - Consensus assembled by Interfax, adjusted for outliers              
Source: Company, Interfax, Sberbank CIB Investment Research              



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