In 2018 there will be no placement of ALROSA shares

Placement of ALROSA shares in 2018 will not be.
The additional public offering of another 8% of ALROSA's shares, as foreseen by the forecast plan of privatization of the Russian Federation in 2017-2019, has been postponed for an indefinite period. The official cause was named the accident in 2017 at the Mir mine, which deprived the company of 9% of the production. But the decision could also be influenced by the rising oil prices and the lack of agreements between the federal center and Yakutia, which own 33% of ALROSA.

The next round of privatization of ALROSA in 2018 will not happen, Deputy Finance Minister Alexei Moiseyev said on January 26. According to him, the issue "fell into the background" after the accident at the Mir mine, "before selling something to investors, it is necessary to understand what will happen to it." Prospects for placement in 2019 in the Ministry of Finance have not yet been considered.

Mir, which provided about 9% of ALROSA diamond production, was partially flooded in August 2017, the resumption of production is possible no earlier than 2022-2024, CEO of ALROSA Sergey Ivanov said recently. In November 2017, he himself said that he considered expedient the rapid privatization after the accident and repeated it on January 24, stressing that, although everything depends on the decision of the shareholders, "in 2018, no reduction, a reduction in the package by the state and the Sakha Republic it is assumed, is not even discussed ". "The company has a fairly good share growth potential in the next few years, so, in my opinion, there is no point to privatize today," Mr. Ivanov said. On this statement, ALROSA shares on the Moscow Stock Exchange fell on January 24 by 2.4%, the next day grew a bit, but on January 26, after the statement of the Deputy Minister of Finance, again sank by 2%. The capitalization of ALROSA amounted to 600.9 billion rubles.

The decrease in the share of the Russian Federation in ALROSA to 29% plus one share from the current 33.02% is foreseen in the forecast plan of privatization of 2017-2019. Sale by agreement of shareholders should be coordinated with Yakutia, which owns 25% of ALROSA through the republic's ministries and another 8% through the administration of the uluses. Thus, in the market it was expected that 8% of the company could be privatized. But the head of Yakutia, Yegor Borisov, in March 2017, opposed the decline in the share of the region. "Our 25% plus one share is protected by law, so we do not plan to privatize them. Districts are also tied to this law, so it's very difficult, "he said.
In 2017, ALROSA sold 41.2 million carats with a production of 39.6 million carats, in 2018 sales are planned at 40 million carats with a production of 36.6 million carats.

Sergei Donskoy from Societe Generale agrees that the accident at the "World" will have a significant impact on the company's financial performance. "If in 2018-2019 it will be possible to keep sales volumes at the level of 40 million carats from stock, then later it is unlikely to be possible with the normalization of the runoff," he believes. At the same time, the analyst clarified, if conservative forecasts are justified, then 2018, on the contrary, could be a good moment for placement, since the market has not yet fully considered the trends that could negatively affect the financial results of the company on the horizon of three to four years . According to Sergei Donskoy, in the case of the privatization of the state block of shares of ALROSA, the authorities are less likely to proceed from the specifics of the industry, and more from the budget forecasts, which became more optimistic against the background of oil price rises (January 25, Brent prices for the first time in four years rose above $ 71 per barrel).

Oleg Petropavlovski from BCS agrees: ALROSA shares are traded on high multiples (for example, 11 P / E), which is unlikely to last for long, and now would allow the company to sell the package at a good price. The analyst believes that the decision to postpone privatization was affected by various positions on the sale of shares from the Russian Federation and Yakutia. The authorities of the region have repeatedly opposed the reduction of their share, which feeds the region through dividends, the analyst explains, and, obviously, "still do not incline to a one-off income."