A fresh privatization plan for Alrosa that includes the sale of the full 50.9% Government stake, is being considered by Deputy Prime Minister Igor Shuvalov and Economic Development Minister Elvira Nabiullina, it has emerged, John Helmer says in his comment posted on Polished Prices.

According to a government leak in Moscow, Shuvalov and Nabiullina intend to post an open letter to investors, asking them to say what stakes of what state-owned concerns they would like to buy.

Alrosa's chief executive, Fyodor Andreyev, announced a different kind of privatization in a press release dated January 18, leaving the main mining company intact, but spinning off as separate IPOs three distinct diamond mine assets.

Because Alrosa is legally a closed company, its shares cannot be traded. This has happened illegally in the past, however. It can also occur legally, though the process is cumbersome and non-transparent. As markets go, the share market for Alrosa is coloured gray to black, and the pricing of the shares is highly artificial.

But this week, in a leak accompanying the one about the Kremlin’s idea of selling off of 50.9%, if an interested buyer can be found, there was a second idea.

According to a Russian newspaper, the idea is that a valuation of Alrosa's potential market capitalization by a Swedish investment fund has cut the company's potential IPO value to a share-buyer by two-thirds - from about $6 billion to less than $2 billion.

The fund, Vostok Nafta of Stockholm, which currently owns 1,159 Alrosa shares, values them at $6,250 a piece, for a total value in Vostok Nafta's portfolio of $7.2 million. The numbers are contained in Vostok Nafta's annual report to its stakeholders for 2009, which was issued on February 17.

Vostok Nafta’s 2007 report reveals that that year it had bought 966 shares at a market price of $28,000 each. A year later, Vostok Nafta reported that it had cut the market value of the shares to just $3,000 apiece. In the latest report for 2009, Vostok Nafta reveals that it bought 193 more Alrosa shares to make a total of 1,159. The market value assigned to the lot is now $7.2 million. This makes for a market price of $6,250 per share – more than double the previous year’s share price, but less than one-quarter of the value at acquisition.

Alrosa was asked what it knows of the Vostok Nafta share valuation.

Andrei Polyakov, the company spokesman, said: “If Vostok Nafta calculated the price, then we should ask them how they did it. I don’t know where the price came from, and I have no idea who may need to call it. It’s nonsense.”

Sergei Goryainov, a leading Moscow diamond analyst and editor of the Russian journal,  Rough & Polished, said he believes the latest Vostok Nafta estimation of $1.7 billion for Alrosa is “an under-estimation.” He suspects the fund is trying to push the price down in order to buy more shares ahead of an IPO.  “Perhaps someone wants to buy a stake at a lower price,” he said. 

At Vostok Nafta’s Stockholm headquarters, the corporate spokesman and head of investor relations, Robert Eriksson, was in his office all day. He was asked how the fund portfolio managers did their annual valuation of Alrosa shares; how to explain the sharp cut in share value since 2007; and the doubling of share price during 2009, the worst year financially the 17-year old Alrosa has had.

Eriksson refused to respond to telephone calls and emails, saying through a secretary he was “too busy”. He also refused to answer the questions.