Russia To Further Privatize ALROSA Diamond Miner?

Economy
03/02/2016 01:02

Reuters reports that Russian President Vladimir Putin may be looking to sell some of the country's largest companies, including the world's largest diamond miner, ALROSA. Russian oligarchs are the most likely potential buyers of the stakes, but in contrast to Putin's 2014 insistance that public offerings of Russian state companies be done on the Moscow Exchange - ruling out more liquid, deeper markets in Hong Kong, London, and New York, limiting access to Western investors - the Kremlin said that foreign investors were welcome to participate in the privatization, which has been driven by an economic crisis brought on by low oil prices.

However, as Reuters comments, "former officials, bankers and analysts said the perceived risks of a country subject to western sanctions over Ukraine and with a history of disputed property rights, would limit foreign participation." Andrei Shemetov, deputy head of the Moscow Exchange, said, "It is possible to sell these assets, but it will be a serious effort," adding that ALROSA "has been catching investors' eyes for a long while". Vadim Bit-Avragim, portfolio manager at Kapital investment house, said, "I suspect (Alrosa) will stir the largest demand. The company's business is recovering, demand for diamonds is returning." According to Paul Zimnisky's analysis from 2014, the Russian Federation currently owns 44% of ALROSA, while the Sakha (Yakutia) Republic owns 25% and the Sakha Republic Regional Administrations own 8%. The current public float is 23%.

Noting that the republic needs cash, critics say that this might be a ploy to enrich Putin supporters. Reuters reports that this could potentially enrich those around Putin and cause public discontent that could hinder his possible presidential re-election in 2018. According to polls, more than half of Russians oppose privatization. "It's possible it is tied to the process of de-offshorisation to bring money back to Russia and in return get good assets at half price," a financial market source said. To avoid criticism, Putin must ensure the assets are not sold too cheaply. "The only option is to force some oligarchs, loyal to the Kremlin, to buy stake with a premium to market prices," said an investment banker who is close to the process. Reuters concludes, "What Putin envisages and what may happen may not coincide however; several ambitious privatization plans announced by Russia in the past decade failed to materialize."