Kommersant learned that the Ministry of Finance considers it possible to privatize the Smolensk Production Association Kristall, which produces more than half of Russian diamonds, through the direct sale of ALROSA. This will avoid the risk of buying the plant "unscrupulous competitors", which can simply close it. The ALROSA Supervisory Board has already approved the acquisition of Kristall, but the company says that the final decision depends on the method and price of privatization. Kommersant sources say that the government de facto asked ALROSA to take on the balance a distressed asset. According to analysts, Kristall costs about $ 200 million taking into account the debt and will not have a significant impact on ALROSA.
The ALROSA Supervisory Board on April 28 "recognized as expedient" the acquisition of 100% of the shares of OJSC "PA Kristall" from the state "" in accordance with the government's instruction dated March 26 "(it was given by First Deputy Prime Minister Igor Shuvalov, the results of the meeting were disclosed on May 4). The decision was not approved unanimously: the independent directors of ALROSA Maria Gordon and Oleg Fedorov, nominated by institutional and portfolio investors, spoke out. But the investors themselves did not upset the decision: on May 4, ALROSA's capitalization fell by 0.68%, to 648.8 billion rubles, with the Moscow Stock Exchange index rising by 0.7%.
is the margin of diamond cutters and jewelry business, according to the consulting company Bain
"Taking into account that more than half of diamonds produced in Kristall are included in the list of strategic JSCs, the preferred option is direct buy out of ALROSA," Deputy Finance Minister Alexei Moiseyev told Kommersant. "This will avoid risks of participation in open auction of unscrupulous players for whom the purpose of acquiring may be to close it as a competitor. " According to the official, the integration of ALROSA and "Crystal" will allow "to increase the competitiveness of the merged company and its investment attractiveness." The Ministry of Finance also expects growth in production and sales of diamonds. Now the Federal Property Management Agency is evaluating Kristall, Mr. Moiseyev specified. The Federal Property Agency declined to comment.
According to the interlocutor of Kommersant, who is familiar with the discussion of the issue, the general logic of the order of Igor Shuvalov about the purchase of ALROSA's Crystal is understandable: the companies have experience of joint work, and ALROSA, whose financial position is beyond doubt, was asked to help industry colleagues with financial problems. In "Crystal" only reported that the company's CEO Maxim Shkadov "last year said all about this." In March 2017, he said that "the purchase of company shares can only be carried out by a strategic investor," to which "only ALROSA" is in the Russian Federation.
In ALROSA, the final decision on "Crystal" is promised after the definition of the method of privatization, the price and its correlation with the possible economic effect. In the company, "we are ready to consider the possibility of buying", since "unification under certain conditions can give synergy." The processing business will help ALROSA more accurately understand trends in the market and changes in the market conditions, obtain "additional value added on a certain range", which also reduces the risks of dependence on foreign manufacturing markets. The company already has a diamond division "Diamonds ALROSA" with sites in Moscow and Barnaul, but "its possible expansion does not mean a drastic change in strategy": the company will continue to receive the bulk of the proceeds from diamond mining.
In 2016, "Crystal" with a revenue of 15.7 billion rubles. received 382 million rubles. loss, the debt was 7.6 billion rubles. Consulting company Bain noted in November 2017 that the margin of cutters and jewelers is 2-4%, small retailers - up to 5%, large networks - up to 11%, while diamond miners - on average 27-28%. In 2017, ALROSA's margin on EBITDA (126.9 billion rubles) reached 46%, revenue - 275.4 billion rubles, net profit - 78.6 billion rubles. The profitability of Kristall fell after the cancellation in 2016 of a duty of 6.5% on the export of diamonds from the Russian Federation: in 2015, the operating profit was 1.6 billion rubles. (margin of 12%).
Sergei Donskoy from Societe Generale believes that, based on the available financial statements of Kristall, the company's price can reach $ 200 million, half will be paid in cash, and half - due to the debt on the balance of ALROSA. Oleg Petropavlovsky from BCS is confident that the purchase of Kristall will be a compulsory step for ALROSA: it is a question of a "deal under the control of the state," and its amount may be symbolic, or "companies can create other comfortable conditions."
Large diamond miners do not aspire to the limestone and jewelry segments, and although De Beers has such a business, it can hardly be called successful, says Sergei Donskoy. At the same time, he adds, the Smolensk plant is "quite small by the standards of ALROSA" and will not seriously affect its cash flows. Now ALROSA has an average granite of about 300 thousand carats per year, capacity utilization is less than 40%. But the Ministry of Finance is preparing to abolish VAT on rough diamonds, and with this in mind, while working on Crystal's business processes, ALROSA will be able to take the plant to zero or even profit, Oleg Petropavlovski believes. To increase profitability, Kristall can only cut large and colored diamonds . Boris Krasnozhenov of Alfa Bank adds that Kristall can handle about 2% of the planned ALROSA in 2018 for the production of quality diamonds. In his opinion, if ALROSA confines itself to cutting on Krystal premium stones and does not go deep into the mass market, the impact of the deal on its business will be negligible.