Alrosa, the state-run diamond monopoly, will sell two oil and gas assets to VTB, its main creditor, for $620 million, an Alrosa source said Friday.
Analysts said the assets were worth a third of the price, effectively turning the deal into a state bailout for Alrosa as it struggles amid growing debt and tumbling demand for diamonds.
The deal is in its final stages, and Alrosa is waiting for the money to be transferred to its accounts, the Alrosa source said, confirming information first reported by Interfax.
VTB’s investment arm, VTB Capital, is advising Alrosa on the “complex transaction” and will re-sell the asset, Reuters reported, citing a source close to the deal.
VTB deputy chairman Vasily Titov and a VTB Capital spokeswoman declined to comment on the arrangement.
The Alrosa source, who asked not to be named in line with corporate policy, refused to say which assets had been sold.
The assets, however, are widely believed to be the Urengoi Gas Company and Geotransgaz, which VTB earlier agreed to buy if Alrosa promised to buy them back, Kommersant reported April 29.
Potential end buyers of the two companies include Itera, Russia’s largest independent gas producer, and Rosneft, the state-owned oil giant.
Itera chairman Vladimir Makeyev said April 27 that he was interested in the Urengoi Gas Company and Geotransgaz, which is developing a deposit adjacent to the Sibneftegaz-owned Beregovoye deposit, 28 percent controlled by Itera.
Nobody picked up the telephone at Itera’s press office late Friday afternoon.
Rosneft spokesman Nikolay Manvelov said Friday that if VTB decided to sell the assets, his company would study the conditions of the offer.
Geotransgaz’s deposits are estimated at 50 billion to 70 billion cubic meters of gas and 10 million tons of oil and gas condensate. The Urengoi Gas Company has a license for the Ust-Yamsoveisky subsurface side, whose reserves have not been defined yet. Geotransgaz’s deposits are located in the Tyumen region, while the Urengoi Gas Company works in the Yamal-Nenets Autonomous District.
VTB paid a remarkably high $1.6 per barrel of oil equivalent, even though demand for the gas extracted at the deposits is not secure and Urengoi Gas Company hasn’t even begun extraction, said Valery Nesterov, an oil and gas analyst with Troika Dialog.
“This is really very expensive,” Nesterov said. “I would give $200 million for the assets.”
The deal looks like a state bailout for Alrosa, Nesterov said.
Alrosa’s supervisory board is chaired by Finance Minister Alexei Kudrin.
Alrosa posted a loss in 2008, Interfax reported Friday, citing corporate financial results that are to be published this week. The company suffered a net loss of 32.6 billion rubles against a net profit of 16 billion rubles in 2007, which the company explained by the fact that its debt is fixed in dollars and a drop in the price of forward foreign currency contracts it had signed.
Alrosa sold no diamonds on the market from November to July. However, it has not cut its production levels or 18.3 billion ruble investment program.
The company’s debt has almost doubled to 115.5 billion rubles from about 60 billion rubles, Interfax said.
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