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5 Oct, 2010 10:33

Alrosa clearing decks for IPO

Russia’s top world diamond producer, Alrosa, could launch an IPO in the next few years. The company is currently trying to sell non core assets and attract investment with a Eurobond issuing strategy.

The company sees a Eurobond issue as more attractive in terms of duration and cost, while the local bond market seems to be out of reach according to Igor Kulichik, Financial Director Alrosa

“Nowadays a 10 year rouble bond issuing is impossible and the external markets are more financially attractive to us. The company long-term plans are to reduce its loan debt portfolio and increase borrowing period.”

Along with debt restructuring Alrosa plans to conduct an IPO in 2011-2012, after it is converted from a closed joint stock company into an open one. Kulichik said the conversion of Alrosa into an OJSC will require amendments to legislation in Yakutia, where the company is based. He also added that the proceeds from the IPO will be used to expand diamond production

“Today we’ve come to realize that IPO is an important instrument for capital inflows from company investors, which can drive a progressive development and resource base expansion. Moreover, sale of 20-30% of company shares will keep the company under the control of the government. However, to succeed with an IPO we still have to manage the production and financial economy leading to a several political and economical decisions. I believe if today we start the preparation process, by 2012 we will be able to arrange an IPO.”

Investment bank J.P. Morgan values the company at up to $9 BILLION.

Marat Gabitov Metals and mining analyst, at Unicredit Securities expects the demand for diamonds to grow on the global market with appetite from China overtaking U.S. consumers.

“Demand is likely to grow because diamonds are kind of a luxury product and if you look at China right now, this year we already saw that China was the biggest market for luxury cars, for example, and I believe strongly that China will overtake the US as the biggest market for diamonds. Currently US accounts for over 50% of the world diamond market. I think shortly China could replace it and there will be enough demand.”