Russia shared the diamonds with the Middle East and pensioners

Russia shared the diamonds with the Middle East and pensioners

Moscow. July 12. Unknown, did the organizers of the SPO ALROSA is in talks with investors the latest slogan of the marketing campaign of the Association of producers of diamonds (Diamond Producers Association) “Real is Rare. Real is a Diamond”, but the message about the uniqueness of Russian companies to the recipient they brought very successfully. The recipient this was, however, quite unexpected.

To date, the Association ordinary member of the diamond industry with the Middle East was limited to the Dubai diamond exchange (calling criticism of non-governmental organizations participating in the Kimberley process for the sale of “unaccounted for” by the organization of rough diamonds from Africa) and single-piece orders of sheikhs, who are asked to put on the diamond line from the Koran. Thanks to the Russian direct investment Fund (RDIF) Arab investors came into contact with the Russian company controlling 29% of the world market of diamond, directly. In accordance with the policy of “substitution of investors” (quote from the first Deputy Prime Minister Igor Shuvalov), active middle East funds helped to offset the passivity of the American.

Another innovation of the SPO was the appearance in the book applications of non-state pension funds (NPF). Their participation was a subject of special efforts of the government and organizers, and make for example the SPO of ALROSA’s insights about the coming invasion of the NPF on the stock market while early. As the findings that the presence of NPF in ALROSA shares will be long – despite the fact that pension funds are considered a priori long-term investors (and the proportion thereof, according to the organizers, 90%).

SPO is not at the peak, but with the minimal discount

The deal, which was the first public offering of shares of state companies in 2013, allowed the state to take advantage of the revival of demand in the diamond market in the first quarter of the current year and the resulting growth of financial indicators, and quotes “ALROSA”. While the SPO was not at the peak of the company’s share price (mid-to-late April was trading at 75 rubles), accompanied by increased target price of the investment companies and banks on securities, “ALROSA” to the 80-86 rubles.

The offering price of 10.9% of shares of “ALROSA” amounted to 65 rubles (discount of about 4% to the closing price of July 6, when it was opened the order book), the volume of demand for shares exceeded supply by approximately two times. Discount SPO can not be avoided, but in the case of the placement, ALROSA managed to minimize it, said the head of Rosimuschestvo Dmitry Pristanskov.

Payments to investors for shares under the offers are expected on 14 July of the current year, said “ALROSA”.

According to the assessment of most analysts, the shares of “ALROSA” preserve prospects for further growth. Time for SPO chosen because the diamond market stabilized and discount accommodation in 4% of the market was lower than initially suggested by the experts in relation to state-owned companies (63 RUB per share), according to analysts “Atona”.

The discount is only 5% on the back of summer holidays and the transaction carried out in just 2 days – in a good way surprised,” said Oleg Petropavlovsky from BCS.

According to analysts BCS, re-rating of ALROSA shares after the SPO will be caused by the elimination of the risk overhang of supply of these securities on the market in anticipation of privatization, the increase in the proportion of free float to 34% (only 1 percentage point lower than the benchmark sector of Norilsk Nickel and increased liquidity. In addition, positive for ALROSA shares will be the probable increase of their weight in MSCI Russia after SPO. “We expect that the weight of ALROSA shares in MSCI Russia after SPO will be increased from current 1.4% to 2% (by 3.4 percentage points lower than that of Norilsk Nickel)”, – stated in the review of BKS.

Selling vs dividends

In the beginning of this year, despite the traditional assurances of the economic ministries in the er of a large-scale sale of state assets, the sale of “ALROSA” was difficult to believe. First, the phrase “privatization of ALROSA,” religious causes fear among the leadership of Yakutia, even if it is only about reducing the Federal package. Second in charge of ALROSA’s Vice-Premier Yuri Trutnev urged not to rush to cut the government stake in the company, especially on the background is not the best world market conditions.

Privatization of ALROSA, “akin to selling the cash cow”, said Trutnev at the end of February. In his opinion, the alternative to privatization of part of state block of shares could be to increase dividend payments: the state in the next couple of years will earn the same amount as from a potential sale, while remaining owner of the shares.

The increase in dividend payments “ALROSA” has occurred already in 2016 – at the end of last year, the company first transferred to the shareholders of 50% of net profit under IFRS, in contrast to most state-owned companies implicitly by the relevant Directive of the government. Reap the benefits of will be able and the new shareholders of “ALROSA”, if you will complete the calculations before the day of closing of the register on July 19.

Only ALROSA will pay for last year of about 15.4 billion – owned by the Russian Federation (in case of refusal from privatization) 44% of the shares would have 6.8 billion rubles. The pace of the Russian budget it would take about 8 years to grow 52 billion raised in the course carried out within a few days of sales at 10.9% of shares of “ALROSA”.

The structure of the book

For Russian investors in the structure of demand accounted for 35%, including the share of NPF amounted to about 20%, said Boris Kvasov, managing Director of equity capital markets “VTB Capital” (the organizer of the transaction together with Sberbank CIB). Also 35% of demand was accounted for by European investors, 25% – to investors from Asia and the Middle East. The share of American investors, which played an important role in the IPO of ALROSA in 2013, this time had only 5% of the volume of demand.

The Oppenheimer funds and Lazard, which controls about 4% of ALROSA shares, gave preliminary consent to participate in the SPO, but judging by the final alignment, this participation was minimal. American funds is now extremely careful in relation to Russian companies, said one of the sources.

Commenting on the position of the funds of the shareholders, the President of ALROSA Andrey Zharkov half-jokingly suggested that they were afraid of repercussions and were not interested in the frequent mention in the press before and during the SPO. “The more diversified investor base will be, the better. We are pleased to welcome all investors”, – said the head of the miner.

“We knew that the US was not much interest in this deal. We think it’s okay. This is not solely a factor of the sanctions. We understand that there are a lot of reasons,” – said during the ceremony of closing the first Vice-Premier Igor Shuvalov. “But most importantly, despite the different attitudes of investors, the transaction as a whole failed. This means that gives the results of the policy pursued by the government recently to replace investors and divert attention to other States where you may receive this interest,” he concluded.

Not in size, in spirit

The result of the policy by substitution of investors” was the arrival in the capital of “ALROSA” “leading international investors from different regions of the world, including funds from the Middle East and Asia” (quote from the press release of the Russian direct investment Fund (RDIF). “In the consortium, for every ruble invested, RDIF attracted more than 10 rubles from foreign partners”, – said the FUND. From this phrase we can conclude that the proportion of the FUND in the final distribution of shares of “ALROSA” at least 10 times smaller than attracted investors. Not in size, in spirit RDIF still became an anchor investor, ensuring the presence of exotic funds in the capital of “ALROSA”.

Part of the middle East funds may be part of some agreement at a high level, the second part which may be not connected with “ALROSA”, said the representative of one of the funds participating in the SPO. “It is not clear what motivates them. Maybe it’s a consequence of currency debasement that expresses care in the shares of diamond mining company as one of the tools for saving money” – he said. In any case, middle Eastern and Asian funds in the capital is “better than a dedicated mining funds, which will run at the first outflows”.

One of the representatives of European investors – participants in the SPO – UK is TKB investment partners, which acted in the placement of ALROSA as a consultant to offshore funds. “Successfully, our application was approved,” – said managing Director for investments UK Mr Zubrow. TKB investment partners, in particular, is a consultant in managing funds BNP Paribas Investment Partners, Alfred Berg and Formuepleje.

Chuprov also noted that the company applied for the shares, “ALROSA” and as a managing pension money, but in the end didn’t bought the miner, since this conservative bid came in below the offering price.

Part of the success

This example clearly describes the careful strategy of the NPF, whose participation was so important to the government as a signal for the emergence of a new privatization class of investors. NPF is an important guarantee of return on investment, since it affects the outcome of the management of pension funds. Freed from the requirement of break even for the year with the introduction of the five-year investment horizon, pension funds have become more tolerant to risk.

“Yield NPF is calculated in rubles. In the case of turbulence on the Russian market, the share price of exporters will only grow. That is, for pension funds it is almost a win-win situation”, – said one of the interlocutors. And yet it was difficult to find one close to the transaction source that does not be celebrated, with some difficulty, the NPF has decided to participate, and how much discount requested for the shares of ALROSA, relating them to high-risk assets.

The highest bid – 6 billion roubles – from the SPO filed NPF VTB Pension Fund”, said two sources close to the deal. Under the control of the NPF, there were about 117 billion rubles for the end of the first quarter (data of the Central Bank of the Russian Federation) in the shares of ALROSA, the Fund has invested just over 5% savings. Active position of NPF VTB sources explained the “special relationship” VTB, “ALROSA”, whereby, according to one of interlocutors, NPF VTB “will not go quickly from this position.

The sale of the NPF is unlikely to be a problem for the market in the future, says Oleg Petropavlovsky from the BCS.

However, the first Deputy Chairman of the Central Bank Sergey Shvetsov to estimate the proportion of pension funds as “unusually high” – without specifying, however, whether we are talking about the volume of applications or the proportion of satisfied. “We need to get used to it. Industry we had. We ended up creating a guarantee system, and our seniors, too, will get a piece of success that will ensure their well-being in retirement,” – said Shvetsov at the ceremony on the Moscow stock exchange on Monday.

The welfare of the shareholders of “ALROSA”, not waiting until they reach retirement age, volunteered to provide the company, the government and the Finance Ministry agreed to the extension of the rules on payment of 50% of net profit in accordance with IFRS and in 2016. Practice shows that in recent years, to prevent this welfare can only be a new round of devaluation of the ruble, reducing the base for calculating dividends due to the revaluation of foreign currency debt.