* Alrosa will be one of a handful of listed diamond miners
* Will sell 16 percent stake in Moscow this month
* Alrosa targets valuation of more than $10 billion -
By Polina Devitt and Clara Ferreira-Marques
MOSCOW/LONDON, Oct 2 Russia pushed ahead with
its drive to raise cash from state-owned assets, deciding to cut
its stake in diamond miner Alrosa in an up to $1.8
billion share sale that is the gem industry's largest in over a
Alrosa - whose roots date back to the first Russian diamond
mine, discovered in the 1950s - has been steadily growing its
production and market share over the decades, overtaking Anglo
American-owned De Beers in 2009 as the world's biggest
diamond producer by volume, though it has yet to catch it in
Russia's federal and regional governments will sell 14
percent of Alrosa's shares, using the cash to bolster state
finances. An additional 2 percent will be sold by an Alrosa
subsidiary and these proceeds will be used to pay down debt.
Olga Dergunova, the head of Russia's Federal Agency for
State Property Management, declined to comment on the timing of
the sale which has been planned for more than a decade.
Alrosa is already listed on the Moscow stock exchange, with
a free-float of around 9 percent. But only a small amount of
those shares are actively traded and the market is illiquid.
That accounts for a market value of just over $8 billion,
based on current trading, compared with the target valuation
implied by the share sale, according to a banking source, of
between $10 billion and $11 billion.
A separate source familiar with the deal said Alrosa was
targeting a valuation of more than $10 billion. Alrosa declined
to comment, though in May CEO Fyodor Andreev put the value at
between $9 billion and $15 billion.
The target valuation is between 38-44 roubles per share,
said another banking source, and 40-47 roubles per share,
according to a separate banking source. This would put the stake
sale in a $1.4-1.8 billion range.
Alrosa's shares rose 6 percent to 38.5 roubles on Wednesday.
"The asset is unique - at the moment Alrosa has no direct
peers among public companies," Barclays Capital analyst Vladimir
Sergievsky said. De Beers, Alrosa's most direct competitor,
delisted in 2001 and is now 85 percent owned by Anglo.
"Investors who buy Alrosa shares will get exposure to the
consumer sector, which is unusual for mining companies. Demand
should be good."
Analysts also point to a positive outlook for diamond prices
in the longer term, with demand expected to outpace supply
towards the end of this decade, as existing mines age with new
deposits unlikely. The last major mine was discovered in 1997.
The roadshow ahead of the sale is expected to start around
Oct. 14, with the deal set to close by the end of the month.
Goldman Sachs, JPMorgan, Morgan Stanley and VTB Capital are
joint global coordinators and joint bookrunners for the
offering. Renaissance Capital is a joint bookrunner.
Following the sale, Russia's federal and regional
governments will own 43.9 percent and 25 percent respectively.
A STRATEGIC ASSET
Alrosa's main assets are located in Yakutia in Russia's Far
East, a remote region of tundra and forest, and the country's
largest province, also a repository of large deposits of natural
resources from oil and gas to gold and coal.
Alrosa has long been seen as a strategic asset by Russian
and regional governments, complicating the approval of a share
sale, which is much needed as the company seeks to invest in its
mines and equipment. The company itself has said it is ready for
a public offering, and banking sources said last month the share
sale was set for October.
The sale is part of a $50 billion, multi-year drive to
dispose of state assets that was launched in 2010 by reformist
former finance minister Alexei Kudrin. The privatisation plans
have been only partially implemented in a faltering global
economy, and in June the government cut its target.
Last week, Alrosa also sold its gas assets to Russia's top
oil producer Rosneft for $1.4 billion, meaning the
company is now purely focused on diamond mining.
Alrosa will be one of very few pure listed diamond miners -
its nearest rival is London-listed Petra Diamonds, with
a market capitalisation of less than $1 billion - but it could
remain out of reach for many, as it will be listed in Moscow.
That will also complicate comparisons for investors.
Societe Generale analyst Sergei Donskoy said that assuming a
valuation of $9 to $10 billion, and assuming the company's net
debt will decrease to slightly less than $2 billion by the end
of 2013 from current $3 billion, the company's EV/EBITDA at such
an equity valuation would be around 5 times.
That is below 2014 valuations for the precious metals and
diversified miners, but above the average for the diamond sector
of 3.5 times, according to Nomura and based on consensus
estimates. That number, though, includes rivals as varied as
fast-growing Petra, trading at almost 6 times, and troubled
smaller players like Gem Mining at just over 3, according to
Thomson Reuters data.
Apart from its mines in Russia, Alrosa is also a shareholder
in the Catoca mine in Angola, the country's largest.