Page 103 - RusRPTOct19

August. In addition to the contraction in miners’ sales and fall in Indian polished diamond exports, we note the slowdown in downstream sales in the US and China. Although the cut to Alrosa’s sales guidance might make a material contribution to the drop in rough diamond supply in 2019, the 8% fall in US jewellery sales and 10-24% drop in China and HK suggests that downstream destocking could last for longer. Alrosa sales cut suggests lowest global supply since 2015-16. In August, major miners’ sales continued to reflect the slowdown on the global diamond market. Alrosa reported a 51% y/y decline in July sales, while De Beers reported a 44% y/y fall in August sales, noting the destocking of polished diamonds inventory in the midstream, as well as reduced manufacturing levels in key cutting centres. Furthermore, Alrosa made an additional 1.4pp decrease in the rough diamond index (it is down 6% YTD as of now). Meanwhile, despite the increased production guidance of 38.5mncts, Alrosa slashed its 2019 sales guidance to 32-33mncts. Based on this, we estimate its global diamond sales are down 9% y/y to 133mncts (the lowest since 2016) and 11% to $13.7bn (the lowest since 2015).
Russian uncut diamond major Alrosa is toying with the idea of acquiring a 100% in country's largest diamond cutter, state-controlled Kristall, for RUB1.89bn ($30mn). The planned acquisition has already been approved by the government. Alrosa already has two in-house polishing facilities, which account for 20% of Russia's production of polished diamonds. The acquisition of Kristall would bring Alrosa's share in the business to 70%, Sberbank CIB estimates on September 18. "The acquisition of Kristall had been expected, and the deal size is in line with what we had estimated. The company is relatively small, and its consolidation would have only a marginal impact on Alrosa's financials, including its profitability," BCS Global Market commented on the deal, seeing the deal size as immaterial for Alrosa at only about 0.5% of market capitalisation.
Russian Association of Professional Investors (API) has requested the Central Bank of Russia (CBR) check a deal in, which Sberbank acquired 10% in iron ore production asset Mikhailovsky GOK of Metalloinvest metals major, Vedomosti daily reported on September 27 citing API's letter to CBR. Mikhailovsky GOK is Russia's second largest complex of iron ore mining and processing, accounting for 20% of total Russia's output. Metalloinvest is controlled by USD Holdings of billionaire Alisher Usmanov. Minorities hold 0.683% in the asset and the API reportedly claims that the deal in, which Sberbank acquired 10% in August 2018 for an estimated RUB6.9bn-9.4bn ($107mn-$145mn) was substantially undervalued when resold to Lebedinsky
103 RUSSIA Country Report October 2019 ww.intellinews.com