By John Helmer, Moscow
If necessity is generally judged to be the mother of invention, crude invention – the fake that is exposed swiftly – is generally the product of desperate mothers. The idea that the Oppenheimer family is keen to buy Alrosa shares, reported by one Moscow business newspaper yesterday and reinforced by another, was regarded as ludicrous by miners and diamantaires who know the circumstances in which Nicky Oppenheimer (image centre) and De Beers were ousted from their last Russian venture in 2008. But a little checking by the Moscow reporters should have turned up the evidence that such a deal, even the faintest interest in it, is also impossible until at least August 15, 2014. So who in Moscow is so desperate as to promote an impossible sale of Alrosa shares? And what does a display of desperation do to the future share price?
The Oppenheimers were pushed out of Russia in 2008 in circumstances which have never been publicly admitted. LUKoil’s controlling shareholder, Vagit Alekperov, the De Beers joint-venture partner initially approved by then Prime Minister Vladimir Putin, had a hand in it. So did Alrosa, then ruled by Deputy Prime Minister Alexei Kudrin. Between the three of them, the formal approval by the government’s Control Commission to authorize the mining of the Grib pipe in Arkhangelsk, was privately reversed, first by delay, then on a technicality, and finally by the writing on the wall. Since the same cast of characters is still running the same business in the same way – expect Kudrin’s return shortly – the Oppenheimers can be certain there is noone in Russia whose word could reliably safeguard their investment.
That, incidentally, is also how many mining houses, investment banks, fund managers, and diamantaires feel about Alrosa’s reliability as a public company. To Rio Tinto, for example, Alrosa was an unacceptable and untrustworthy counterparty in a lengthy negotiation over the rights to operate the new Lomonosov diamond mine in the Arkhangelsk region; that deal aborted two years ago.
The Oppenheimers are explicit. There is no truth in the reports from Moscow on Monday that the Oppenheimer family or its corporate entities are interested in buying shares of Alrosa, if they are privatized by the government later in the year. This is a categorical repudiation of the claim by Vedomosti that it had been told by two sources close to Alrosa, as well as an Alrosa shareholder, that an Oppenheimer family entity had expressed interest in participating in the Alrosa initial public offering (IPO). The newspaper also claimed the Oppenheimers did not respond to questions on the point.
James Teeger, spokesman for the family at Ernest Oppenheimer & Son in Johannesburg, told PolishedPrices.com today: “the media speculation of yesterday has no basis.” He also confirmed that when Nicky Oppenheimer, then chairman of De Beers, sold his 40% shareholding in De Beers to Anglo American Corporation in November 2011, 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 refuses to be drawn into the details. However, Teeger says 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 Vedomosti report appeared, with a simultaneous report of buyer interest in Alrosa shares from Kommersant. These sources suspect the reports had been instigated by chief executive Fyodor Andreyev (image left) as an exercise in stimulating demand for Alrosa shares, raising the share price with the prospect of foreign competition, and bringing forward the date for the proposed IPO.
Andreyev’s spokesman was asked to comment on the reports and their origin. She declined. Off the record, Alrosa sources blame the press leaks on officials in the government ministries responsible. Rosimuchestvo responded by confirming that it is planned to sell Alrosa shares on the MICEX exchange. They were unable to confirm the timing.
The reporters involved say they cannot identify their sources. One of them added: “If you ask those who organize [the Alrosa share] placement and those who are involved in it, then you will not be mistaken.”
The Vedomosti and Kommersant reports also claim there is 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. This has been described as a “strategic” investment, possibly favoured by federal government officials and financed by a combination of state banks in the fashion Sberbank, VTB, VEB and Gazprombank have been operating already in the Russian mining and metals sectors as disbursement sections of a newfangled Gosplan.
Potanin is no stranger to the bidding for Russia’s diamond mines. In the mid-1990s he had tried to arrange a takeover of Alrosa by a loan-for-shares scheme through his and Mikhail Prokhorov’s bank at the time, Uneximbank. The plan was fought by federal officials and the Sakha republic, and it evaporated when Uneximbank went bankrupt during the state bond default and rouble collapse of August of 1998. Another shot, a long one, was attempted in early 2009 when Potanin was assembling a plan for consolidation of mining assets to fight off Oleg Deripaska’s hostile takeover. That too evaporated.
Potanin currently employs Gareth Penny, the last of the Oppenheimer appointees to run De Beers. A month ago, Penny was elected as chairman of the Norilsk Nickel board, and is classified as an independent. If Potanin told Penny to ask Oppenheimer if he wanted to buy Alrosa shares alongside Interros, and if Oppenheimer told Penny to tell Potanin his answer was no, Penny would follow instructions. All Potanin’s spokesman will say today is: “Interros may consider participation in the IPO of Alrosa.”
Sakha officials, who regard their 40% stake in Alrosa as strategic, remain adamantly opposed to a Kremlin-sponsored takeover of the company by an oligarch figure. They were effective in defending last year against a scheme of Suleiman Kerimov’s, which included Deputy Prime Minister Igor Shuvalov. Shuvalov was obliged to back down.
In response to the reports that Potanin might be reviving the Kerimov scheme, Alexander Matveyev, one of two Sakha representatives in the upper house of the Russian parliament, dismissed the share sale speculation. He doesn’t comment on “rumours”, he told PolishedPrices.com.
The official agreement between Sakha, the federal ministry of finance, which supervises the diamond sector, and Rosimuchestvo proposes the auction of two shareholding blocs of 7%, one belonging to the federal government and one to the Sakha republic. Alrosa’s chief executive Fyodor Andreyev had publicly advocated increasing the size of the shareholding for sale, but was overruled. As the argument over the size of the IPO has been settled on the small side, JP Morgan and Morgan Stanley have disappeared from the underwriter list. Goldman Sachs remains. VTB, which controls most of Alrosa’s debt, is the default sharebuyer if noone else can be found.
Sergei Goryainov, a leading analyst at Rough & Polished, the Russian diamond industry bible, said the report of Oppenheimer interest was “fiction”. He also dismisses the likelihood that Potanin’s Interros would want to bid for a stake as small as 7%.
“For an oligarch there is no use in this [scale of] privatization. He would buy this little package, and then what would he do with it? When initially there was a discussion on the privatization options for the company, and there was talk of Suleiman Kerimov, he was interested in buying at least a blocking stake — that was a completely different issue. Kerimov acts as a wrapper – to buy the asset, wrap it beautifully in packaging, and resell it expensively. At least in this there is business logic.”
“But now to sell a minority stake — no one needs it, only small speculators. Especially to sell [the shares], not through the London stock exchange, but through the Moscow exchange, from which investors are fleeing right now, running from risks, mainly related to the political situation, with non-transparency, corruption, etc. So what can happen [to Alrosa] is the same as has happened with VTB [currently 57% below its March 2011 IPO fix]. The share price will collapse by 30% to 40%, and will get locked at this level for several years. What’s good about that, I don’t understand.”
Goryainov told PolishedPrices.com he interprets the press leaks as “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 also warns 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 isn’t clear.”