Is Alrosa finally going to open an Indian office?

Will Russia’s state-held diamond giant Alrosa finally open an India office and set up a....

Will Russia’s state-held diamond giant Alrosa finally open an India office and set up a mechanism for the supply of rough diamonds directly to buyers in India by 2011? The move has on the cards for almost a decade but, every time there is movement on this front, it is thwarted for one reason or the other. At the end of September, the Russian major had managed to raise $10.2 million at its auction of special sized rough diamonds held in Hong Kong. The firm had invited 33 companies from India, Israel, Belgium and Hong Kong to bid in the auction.The biggest polished stone weighed 9.04 carat; and the most expensive one weighed 4.01 carat and cost upwards $ 52,089 per carat. Some 69 polished diamonds were sold, with a total weight of 264.66 carat for around $ 3,323,000.The India deal, if it crystallizes now, is significant as it is part of the company’s overall policy of developing a new distribution network based on a combination of long-term partnerships with major purchasers of rough and polished diamonds and regional diversification of sales.Indian Trade Minister Anand Sharma had, late last week, met with his Russian counterpart Viktor Khristenko and discussed the possibility of rough diamond supplies to India under long-term agreements and the opening of the Alrosa office in India. Once the two nations give the green signal, Alrosa will be brought into the discussions, officials in the know said.Incidentally, trade between the two nations in 2009-2010 stood at $4.54 billion not including defence deals.It may be recalled that in 2002, India had lost a similar chance to import rough diamonds directly from Russia, which would have reduced prices by about 20%. Following Russian President Vladimir Putin’s visit to India in 2000, the Russians had made an offer in 2002 to sell some rough diamond lots to India. But Indian manufacturers could not buy them at that time, as the state-owned Russian agency, Almazy-Rossii Sakha (Alrosa) insisted on advance payments.Under Indian foreign exchange regulations, advance payments were not allowed without a bank guarantee, which the Russians were reportedly unwilling to provide. India thus lost an opportunity to import rough diamonds directly. In 2004, Alrosa Chairman Vladimir Kalitin had announced plans to open representative offices in India and the US to handle the rough diamond trade, but once again, not much came of it.Alrosa is  now the world’s largest supplier of rough diamonds after having beaten De Beers in 2009 for the number one position. The company is also Russia’s largest diamond miner, supplying about 97% of that country’s demand. It is now reported to be in discussions with three Indian companies for signing three-year contracts, under which the Russian company will supply rough diamonds worth $490 million.IPO in the offingAlrosa is expected to hold an initial public offering (IPO) that could well value the company at between $7.3 billion to $9 billion. The capital raised is to be used for the development of underground diamond production.The firm is contemplating selling between 20% and 25% of the company for $1.5 billion to $2.3 billion. The company said it plans to sell $3.46 billion of diamonds in 2010, up slightly from last month’s forecast of $3.34 billion. Alrosa accounts for 25% of the global diamond output. In 2009, the company produced diamonds worth approx $2.2 billion, with sales equalling the same amount. This year, the company has ramped up its production and expects the output to be a bit higher at $2.31 billion in terms of value.Contracts in the frayThe contracts with the Indian companies are expected to be signed when Russian Prime Minister Vladimir Putin visits India in March 2011, according to Russian news agency RIA Novosti. The three companies in talks with Alrosa are reportedly Diamond India Ltd, Ratilal Becharlal & Sons and Rosy Blue.The RIA Novosti news agency quoted an Indian official as saying that India would not be interested in buying diamonds on a tender basis, but would rather sign a long-term inter governmental diamond supply contract with Russia. A similar deal was inked by India last year with Namibia.The Russian government holds a controlling 50.92% stake in Alrosa. The remaining shares are held by the Republic of Sakha (32%), administrations of eight municipal districts of the Republic of Sakha (8% per cent) and other legal entities and individuals (9%). Alrosa’s reserves are estimated at around one third of the world’s diamond resources. About 95% of the company’s total diamond production (in terms of value) is gem and near-gem quality diamonds.