Top diamond producer Alrosa plans $1.8 billion float

MOSCOW - The world's top diamond producer Alrosa announced on Wednesday that it would float 16 per cent of its state-held shares as part of the Russian government's teetering privatisation campaign.

A stock valuation released by one of the Russian banks involved in the issue on Moscow's MICEX exchange has put a price tag of about US$1.4-$1.6 billion (1.0-1.2 billion euros or S$1.8 billion) on the stake.

"We expect that the offering will help to reinforce our unique position in the global diamond industry," said Alrosa chief executive Fyodor Andreyev.

"We also expect that the offering will expand our access to the international capital markets and help to unlock the value of the company."

Alrosa had remained one of Russia's most secretive companies despite its global ambitions and long history of providing the federal government with budget revenues at times of economic malaise.

It is also keen to find the resources necessary to launch new mining projects that would make up for its slowly-depleting Soviet-era base.

Alrosa had said in 2011 that its existing mines would provide it with diamonds for the coming four decades only.

Russia remains a tempting but unpredictable market for foreign investors who are interested in tapping its enormous mineral wealth.

Foreign direct investment has been slowed by a perceived lack of court independence and weak ownership laws that turn investing in Russia into an unduly high risk.

President Vladimir Putin appeared to acknowledge the problem during a speech at a business forum in Moscow in which he pledged once again to pursue overdue structural reform.

"We will follow through on all our intended reforms, including the structural modernisation of entire industries," said Putin.

"We will definitely keep our focus on development and the creation of a strong economy."

Russian media said a fund linked to South Africa's De Beers diamonds miner and trader as well as some top Chinese investors had already expressed interest in the Alrosa shares.

The east Siberian firm accounts for roughly a quarter of the world's diamond production and has reported reserves of 1.28 billion carats.

But the company had been riddled with debt and criticised by analysts for opaque accounting practices. Privatisation delayed for years

More than 90 per cent of the firm is held either by the state or the local authorities of Sakha -- the diamond-rich region where the firm is based -- while another nine per cent is traded over the counter.

Alrosa's partial privatisation has been delayed for years because the state had viewed it as a strategic asset in which foreign ownership was unwelcome and potentially dangerous.

It now represents an important part of a Russian privatisation drive that has been slowed by global economic worries and falling prices on the MICEX exchange.

Putin's government intends to raise about $1.9 billion from state asset sales this year -- a downwardly-revised figure that makes a successful Alrosa flotation vital.

"This offering marks an important milestone for both Alrosa and the ongoing privatisation programme of the Russian Federation," said Federal Agency for State Property Management head Olga Dergunova.

"The company's privatisation ... is a landmark step in the implementation of the government's policy of reducing the state's role in the economy."

Alrosa last week agreed to sell some its non-core natural gas assets to the state-held oil giant Rosneft for $1.4 billion as part of its drive to raise funds for new mining investments.

The flotation "is generally a positive for the company because it ... promotes its growth," said Societe Generale's mining analyst Sergei Donskoy.

"But there has been little diamond demand in the past three years," he cautioned. "I put the company's price at the lower end of the valuation."