Oppenheimers, Anglo dismiss Moscow speculation of Alrosa interest

Polished Prices

There is no truth in a report from Moscow, published simultaneously in two Russian business newspapers on Monday, that the Oppenheimer family is interested in buying shares of the Russian diamond miner Alrosa, if they are privatized by the government later in the year.

According to Vedomosti, sources close to Alrosa, including an Alrosa shareholder, claimed an Oppenheimer family entity had expressed interest in participating in the Alrosa initial public offering; the newspaper also reported that the Oppenheimer fund did not respond to questions.

James Teeger, spokesman for the family at Ernest Oppenheimer & Son in Johannesburg, told PolishedPrices; “the media speculation of yesterday has no basis.” He also confirmed that when the Oppenheimer family sold its 40% shareholding in De Beers to Anglo American Corporation last year, the two sides agreed on a no-compete provision. This prohibits the Oppenheimers from investing in a competitive diamond venture for two years.

Anglo American refused to be drawn into the details. However, Teeger said the restriction will last for two years, commencing on August 16, 2012, and expiring on August 16, 2014.

He added that “Anglo American’s interpretation is correct…that it would preclude the purchase of shares in Alrosa by the Oppenheimer family or its associated companies.”

Russian diamond industry sources were also sceptical when the two newspaper reports appeared yesterday, believing that they had probably been instigated by chief executive Fyodor Andreyev as an exercise in raising Alrosa’s share price and accelerating the date for the proposed IPO.

The reports also claimed that there was buying interest in Alrosa shares on the part of Vladimir Potanin, the controlling shareholder and currently chief executive of Norilsk Nickel, through Potanin’s Moscow holding, Interros.

Potanin had tried to arrange a takeover of Alrosa in 1997 through a loan-for-shares scheme through his bank at the time, Uneximbank. The plan was fought by state officials and the Sakha republic, and Uneximbank went bankrupt during the state bond default and rouble collapse of August of 1998.

Sakha officials remain adamantly opposed to the takeover of Alrosa by an oligarch figure, sponsored by factions in the Kremlin. Alexander Matveyev, one of two Sakha representatives in the upper house of the Russian parliament, dismissed the share sale speculation. He does not comment on “rumours”, Matveyev told PolishedPrices.

The federal ministry of finance, which supervises the diamond sector, and the State property agency, which is responsible for privatization of state shareholdings, has been planning officially to auction two blocs of 7%, one belonging to the federal government and one to the Sakha republic.

Alrosa’s chief executive Fyodor Andreyev has publicly advocated increasing the size of the shareholding for sale, but he has been overruled.

Goldman Sachs holds the government’s mandate to arrange the stock sale.

Efforts to promote a strategic purchase of a control stake of the company, financed at a premium price by the state banks, have been promoted by Andreyev, some government ministers and at least one major mining oligarch, Suleiman Kerimov. These plans have so far come to nothing.

Sergei Goryainov, a leading analyst at Rough & Polished, the Russian diamond industry publication, said the report of Oppenheimer interest was “fiction”.

He also dismissed the likelihood that Potanin’s Interros would want to bid for a stake as small as 7%. Goryainov said the press leaks are “a form of insurance” against the possibility that the proposed state share sale will attract weak buying interest, and lead to a post-IPO collapse in market value. Goryainov warned that publicity of this kind is dangerous. “The risk is rather high that the capitalization of Alrosa will fall as a result of all this, so its position on the financial markets worsens significantly. Why this is necessary – it is not clear.

By John Helmer in Moscow.

Source Polished Prices