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By John Helmer in Moscow

A pledge to privatize Alrosa in an initial public offering (IPO) within 18 months, reported to have come from Alrosa chief executive Sergei Vybornov this week in Japan, has run into scepticism and cautions from diamond sector officials in Moscow.

According to a Russian news agency report, Vybornov told a Japanese investment conference in Osaka: “In the nearest future, I mean within a year or a year and a half, we are planning an IPO.”

Asked to confirm that Vybornov was correctly reported, his office in Moscow said it was under instructions not to comment.

A different source close to the company said the statement had been made to “keep up news interest”, and that it is premature to predict how long the planned restructuring of Alrosa’s shareholding will take – and also what the outcome will be.

At present, Alrosa shares cannot legally be sold to anyone. The corporation is a closed type, with 37% held by the federal government. Another 10% is held for the federal government by Vneshtorgbank(VTB), 32% held by the Sakha republic government, 8% is allocated among the Sakha regions (ulus) and the remainder controlled by management.

An undertaking by the Sakha president, Vyacheslav Shtirov, to accept restructuring and emission of new shares to bring the federal government’s stake to 50% plus 1 share has been delayed.

The delay has been a serious bone of contention between the Kremlin and Shtirov for almost three years now; and also between some Kremlin officials and the Alrosa board chairman, Alexei Kudrin, who has been criticized for being too weak in the face of Shtirov’s opposition to the federal takeover.

Kudrin, who is Finance Minister, was promoted this week to the rank of deputy prime minister. There is speculation that the Kremlin has agreed to this, on condition that Kudrin steps down from his Alrosa post, and is replaced by a Kremlin enforcer as chairman.

“It is clear that nothing would happen before the federal government stake will be consolidated – this is the main condition for the IPO,” an Alrosa source told PolishedPrices.

He said the consolidation process involves several steps.

“The first is the additional emission, which will bring the company to the situation when there will be a stake of 50%+1 share on one side, and the rest on the other side,” he said. “The second step is also unfinished. That is, the legalization of the transfer of state property which presumed by the peace treaty between the Sakha and federal governments.”

A pact between the two governments, providing compensation of lost revenues for the regional budget, was signed after the federal government agreed to withdraw a court case it had launched to compel the region to give up shares, and de facto control of Alrosa.

The third step required is the transfer of the shareholding currently in the hands of the state bank VTB, and the shares registered at the federal state property agency.

Alrosa insiders had been expecting that the Alrosa board meeting, scheduled for September, would have discussed the share emission step. But the meeting was not held because President Vladimir Putin dismissed the government, appointing a new prime minister, Victor Zubkov.

Zubkov then negotiated with Putin for a change of cabinet ministers, and the outcome – with Kudrin’s promotion, and minimal changes – was not finalized until September 24.

A source close to Alrosa told PolishedPrices that if there is doubt about Kudrin’s remaining as chairman, it is likely the date of the next board meeting may be delayed.

After the first three steps have been completed, two remain. An amendment of the law and of the presidential decree that created Alrosa must be passed by parliament, transforming the shares from a closed corporate structure, into an open one.

Then the President must sign a new decree releasing shares for privatization and IPO. The Kremlin confirms that Alrosa is presently gazetted as a strategic enterprise, whose shares cannot be sold without express permission of the President.

According to a participant in this process, “the eighteen months mentioned by Vybornov is enough time to restructure the shareholding. But who can tell where he will be by that time?”

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