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Comment by Boris Kvasov, director, equity capital markets at VTB Capital, for Bloomberg

12 July 2016
Bloomberg
Oppenheimer, Lazard Said to Be Among Buyers of Alrosa Shares

Oppenheimer Funds Inc., the asset management unit of Lazard Ltd. and sovereign wealth investors were among buyers of shares in Alrosa PJSC in Russia’s biggest state-asset sale in three years, according to two people with knowledge of the deal.

Mubadala Development Co. PJSC, Abu Dhabi Investment Authority and Charlemagne Capital Ltd. also took part in the offering, said the people, who asked not to be identified because the information isn’t public. The sovereign Russian Direct Investment Fund also bought a "small" stake, it said in a statement, without disclosing the size. Russia raised 52.2 billion rubles ($813 million) in the sale of 10.9 percent of the diamond miner, the government said on Monday.

The sale is the first of three major offerings approved by President Vladimir Putin for this year as the government seeks cash to bridge the widest budget deficit since 2010. Russia’s economy is facing its deepest recession since 2009 after enduring a collapse in oil prices and punitive sanctions over the annexation of Crimea. Officials had been looking to sell the Alrosa stake at 71 rubles a share, Kommersant reported on Monday.


Shares Advance

Shares were priced at 65 rubles each in the offering, according to the government, a 3.8 percent discount to Alrosa’s closing price on Friday. The stock gained 0.9 percent to 68.2 rubles as of 3:49 p.m. in Moscow on Monday.

Lazard and Mubadala declined to comment, while Oppenheimer and Charlemagne didn’t reply to a request for comment from Bloomberg. The RDIF bought a stake of about $50 million, according to one of the people.

European and Russian investors led demand for shares, with about 35 percent of interest coming from each region, while Asian and Middle Eastern buyers together contributed 25 percent, and U.S. funds contributed 5 percent, Boris Kvasov, director of equity capital markets at VTB Capital, which co-organized the sale with Sberbank CIB, said in an interview on Monday. During Alrosa’s previous share sale in 2013, the U.S. was responsible for 40 percent of demand, he said.

"This time, the risk-reward ratio wasn’t comfortable for U.S. investors,” said Kvasov.


Market Recovery

The timing of the sale was selected so that investors could buy the stock before July 19, Alrosa’s dividend record date, and after the market volatility over the U.K.’s vote in June to leave the European Union subsided, said Kvasov.

Alrosa’s share price has advanced 22 percent this year amid a recovery in the diamond market. The gem miner reported record profit of 49.2 billion rubles in the first quarter and promised to pay out half its net income in dividends for 2015, more than the 35 percent required by company policy. At the same time, its estimated price-to-earnings ratio for the next 12 months is the lowest since November at 5.2, according to data compiled by Bloomberg.

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