The Russian government has sold a stake in Alrosa, the world’s largest diamond producer, generating $818 million to help close the country's growing budget deficits.
The stock sale in Moscow announced on July 11 is the largest state-asset sale in almost three years and revealed robust interest from foreign investors, who bought more than 60 percent of the offering despite the Western sanctions imposed on Russia for its annexation of Crimea, Russia's Economy Minister Aleksei Ulyukayev said.
Ulyukayev said the demand for shares, primarily from European and Asian investors, was more than twice as high as the 10.9 percent offered and the good showing pushes forward other major asset sales planned from state oil giant Rosneft, shipping company Sovcomflot, and oil producer Bashneft.
“We hope that all or part of the companies will be sold by the end of the year in order to finance the deficit of the federal budget,” he said.
Plans to sell assets had been delayed by political factors, including opposition among some senior officials who want to keep firm state control, and wariness among the public after prize assets were sold off to insiders in the 1990s.
But President Vladimir Putin has tasked the government with keeping the budget deficit under 3 percent of gross domestic product, sparking a fresh push to sell stakes in large companies.
Russia’s economy is struggling due to weak crude oil prices and Western sanctions imposed after the 2014 annexation of Ukraine’s Crimean Peninsula and other Russian aggressions in Ukraine.
In the Alrosa sale, the government said it placed a 10.9 percent stake at 65 rubles a share, bringing in 52.2 billion rubles ($818 million) for deficit reduction. That price represented a 3.8 percent discount from the company's July 8 closing price of 67.55 rubles.
While the deal was oversubscribed by investors from Europe, Asia, and the Middle East, Ulyukayev attributed a poor showing by American investors to U.S. sanctions on Russia and other unspecified factors.
Around 35 percent of demand came from European investors, 35 percent from Russia, 25 percent from the Middle East and Asia, and 5 percent from the United States, said Boris Kvasov, a director at VTB Capital, which co-organized the sale.
The Russian Direct Investment Fund, a state investment fund, and co-investors acquired around 50 percent of the placement, a financial source told The Wall Street Journal. Co-investors included funds from the Middle East and Asia, and the Russian fund’s participation was “significantly smaller” than that of the investors it attracted, the source said.
Russian First Deputy Prime Minister Igor Shuvalov said a stake in Bashneft could be sold next, followed by part of Rosneft, the world’s largest-listed oil producer. Chinese and Indian officials have expressed an interest in the Rosneft stake.
He said a stake in state-controlled lender VTB Bank -- previously touted for sale -- wouldn’t be sold this year.
Rosneft executives have been saying they are likely to place their shares privately rather than hold a public auction because of the depressed state of the oil sector right now.
Before this week's sale, Alrosa's largest shareholders were the Russian Federation with 44 percent, the Republic of Sakha (Yakutia) with 25 percent, and Yakutian districts with 8 percent.
Around 23 percent of the company's shares were held by third-party investors -- an amount that will rise to 34 percent after the sale is closed.
Alrosa, which operates in Yakutia, is a behemoth in the diamond industry, accounting for 94 percent of Russian output and 25 percent of global production.
Alrosa's probable reserves make up about one-third of the world's diamond resources. Its diamond production was 38.3 million carats in 2015.
With reporting by The Wall Street Journal, Reuters, TASS, and Interfax