State-run diamond miner Alrosa said Tuesday that it might become a "people's company" by raising funds through a share issue to the public, although analysts cautioned that previous state IPOs may have soured retail investors to the idea.
Alrosa will change its legal status, becoming a joint-stock company, and may sell shares to individual investors in the Siberian republic of Sakha, also known as Yakutia, where its mines are located, president Fyodor Andreyev said.
"The crisis is not over, a second wave is expected. In these conditions, the company needs to be able to raise capital, which is only possible after creating a joint-stock company," he told local lawmakers, according to a transcript on the parliament's web site.
"It's easier for a joint-stock company with a transparent management system to raise cheap loans," Andreyev said, adding that an initial public offering could also provide funds needed to develop a number of iron-ore fields in southern Sakha.
The company's outstanding debt of 106 billion rubles ($3.4 billion) currently costs an annual 15 billion rubles ($474 million) to service, Andreyev said. The company's debt grew during the crisis because Alrosa was focused on maintaining jobs and production, he said.
The company, which has not yet announced 2009 results, posted a loss of 32.6 billion rubles ($1 billion) in 2008, compared with a profit of 16 billion rubles ($515 million) the preceding year, Interfax reported last year. Alrosa said in December that it expected net income of 3.18 billion rubles.
Still, opening the state diamond giant comes with risks and must be done gradually, Andreyev said.
"The first step is simply opening Alrosa without discussing the issue of a public offering. Attracting more shareholders and raising additional capital can become the second step," he said.
No timeline has been set for Alrosa's IPO, but preparatory work has started, a spokeswoman told The Moscow Times.
Changing Alrosa's legal status would benefit minority shareholders, who want to sell their shares but cannot do so at the moment, Andreyev said.
The Federal Property Management Agency owns 50 percent plus one share. The Sakha regional government holds 32 percent, and diamond-mining regional districts own 8 percent. The remaining 10 percent belong to smaller investors.
"Ideally, we want to turn Alrosa into a people's company. A public offering will allow the company's staff and residents of the republic to acquire shares," Andreyev said.
A wave of so-called people's IPOs began in Russia in 2006 after Rosneft, the state-controlled oil company, raised $10.4 billion for 14.9 percent of its shares on Moscow and London exchanges.
Prime Minister Vladimir Putin said in 2006 that Rosneft had attracted 115,000 retail investors.
In March 2007, Sberbank followed suit, raising $9 billion for 3.5 million of its shares in a secondary public offering targeting retail investors.
But the VTB offering in May 2007, which attracted $8 billion, was called the worst people's IPO after the bank's stock underperformed the market, causing more than 130,000 retail investors to lose money.
Negative results of such people's IPOs may make retail investors reluctant to buy Alrosa's stocks, said Vladimir Savov, an equities analyst with Otkritie.
Investors may also be discouraged by the overall decline of the stock market during the crisis, he said, adding that the IPO's success would largely depend on the quality of its marketing campaign and the offering price.
The first people's IPOs may be considered successful in terms of the funds they raised, but further relationships of the companies' management with shareholders were “disappointing," said Alexei Navalny, a lawyer who campaigns for the rights of minority shareholders.
Alrosa's IPO will be successful only if the company's management takes these mistakes into account and cooperates with shareholders, he said.
But Alrosa's shares are unlikely to be in high demand with retail investors, Navalny said.
"The diamond business is a very closed [industry] and does not match with the idea of a joint-stock company very well," he said.