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By John Helmer, Moscow

No major shareholder obstacles now stand in the way of the reorganization of Alrosa’s corporate structure, but conversion to the open shareholding company format will take another six months, company spokesman Andrei Polyakov told Polishedprices.com today.

It had been intended that Alrosa’s government board, known as the Supervisory Council, would have voted its approval of the conversion on October 1. But that decision, dominated by the federal government’s board members, was postponed, so that the Yakut regional parliament, known as Il Tumen, would debate the issues and vote first. The Yakuts had been insistent that if they agreed to the reorganization, the federal government should agree that in the subsequent privatization and initial public offering (IPO) of Alrosa shares on public markets, the regional interests would be protected. This forced the board chairman, Finance Minister Alexei Kudrin, and chief executive Fyodor Andreyev (see lower image), to cut their planned sell-off of 40% of Alrosa’s shares to about 20%.

On November 10, Il Tumen voted approval of the third and final reading of the bill to allow the Alrosa conversion. Inserted into the enactment was the condition that the regional government’s share in Alrosa could not be diluted to less than 25% plus one share. The current stake is 32% for the regional government, plus 8% held by district administrations (uluses) in Yakutia. The federal government stake is 51%. Another 9% is held by Alrosa management, retirees, Russian and foreign investment funds, and trustees.

Andreyev has told a Moscow newspaper that the IPO would be capped at a sale of no more than 20% of the company’s shares. He has also hinted that if the regional government, headed by President Yegor Borisov, did not give him the free hand he wants to raise unsecured finance by selling Alrosa shares, he will twist the regional government’s arm. Delaying the share conversion and sale would mean diminishing output and “more labor redundancies”, according to the release from Andreyev’s last management meeting on November 15. .

Polyakov told Polishedprices.com that the next move in transforming Alrosa into the open format (known in Russian as OAO) is a corresponding “decision of the Supervisory Council, and then the voting of the extraordinary meeting of shareholders which will adopt the new Alrosa’s articles. This process will take about half a year, I believe.”

He also confirmed “there will be no further change in the Yakuts’ share capital. Their [the regional government’s] stake will remain at 25% +1 share. No changes in the share capital have been discussed, neither are such discussions planned.”

The timing of the IPO will follow, but may take another six months. According to Polyakov, the timing, stock exchange, and valuation targets are all premature for discussion now.

The company announced earlier this month that its production goal for next year will be “maintaining global leadership by carat output”. That means 34.438 million carats, roughly equal to this year’s level, but ahead of De Beers by about 1 million carats. Production and financial results for this year have not yet been confirmed by either the management or the board, nor released publicly.

The sales target for 2011 for rough diamonds has been fixed at $3.4 billion, up by 2% on this year’s expected revenue total; sales of polished diamonds will come to $160 million, up 8% on this year.

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