MOSCOW. Oct 28 (Interfax) - Alrosa , Russia's diamond monopoly, floated 16% of its shares in to raise 41 billion rubles in an IPO which attracted some of the most prestigious Russian and global investment funds and which senior Russian official hailed as a success.

The results

The placement price was 35 rubles per share, an Alrosa statement says. That was the lower end of the 35-38-ruble pricing range specified before the start of the company's road show.

Alrosa was placing 14% of its shares, owned on an equal footing by the Russian Federation and Yakutia, where the company's main production assets are located. The market will also be offered 2% of Alrosa capital belonging to the Cyprus-registered Wargan Holdings, Ltd. Russia's stake in the company will as a result of the IPO decrease from 50.92% to 43.9% and Yakutia's from 32% to 25% plus one share. The free float will grow from 9% (of which a 2% stake consists of quasi-treasury shares held by Wargan) to 23%.

Russian Prime Minister Dmitry Medvedev approved the sale of the state stake at 35 rubles per share in an October 25 resolution.

Based on the low-end of the pricing range, Alrosa as a whole is worth 258 billion rubles. The total IPO volume was 41.3 billion rubles, with 1,181,332,741 shares having been sold.

Interfax sources close to the deal said that it was over-subscribed to the tune of roughly $400 million, or by about a third. Among the buyers were major U.S. investment funds, the Russian Direct Investment Fund (RDIF), and the pension fund Blagosostoyanie.

To support the share price, VTB Capital as stabilization manager can ensure the acquisition of stock amounting to up to 10% of IPO volume in the thirty days following the announcement of the share price. Alrosa subsidiary Sunland Holding SA has given VTB Capital the right to buy shares acquired in the context of the stabilization.

"We will be striving to develop Alrosa as a public company and to increase its value for all shareholders," company chief Fyodor Andreyev is quoted in a company statement as saying.

Goldman Sachs acted as the agent for the sale of shares on behalf of Russia and is also providing sale organization services to Yakutia's RIK Plus. Goldman Sachs, J.P. Morgan Securities plc, Morgan Stanley & Co. International plc and VTB Capital are the joint global coordinators and bookrunners of the IPO. Renaissance Capital is a co-bookrunner. VTB Capital will also act as the stabilizing agent and could support the share price by ensuring the purchase of up to 10% of the overall IPO or by other means for 30 days from when the price is announced.

A good placement

First Deputy Prime Minister Igor Shuvalov said at a ceremony to mark the launch of trading in the Alrosa shares on the Moscow Exchange that Lazard Group and Oppenheimer Funds took part in the IPO.

"Both the over-subscription and investors point to a good placement, and investors like Oppenheimer and Lazard are proof the deal was very successful," Shuvalov said.

Shuvalov also noted the role the RDIF played in attracting investors to the IPO.

The RDIF said in a statement that it attracted leading global investors from North America, the Middle East, West and Northern Europe and Southeast Asia to a joint consortium to invest in the Alrosa IPO.

Sergei Arsenyev, managing director at Goldman Sachs, one of the IPO organizers, told reporters that Lazard Group and Oppenheimer Funds accounted for a large portion of the American demand for shares. He said the oversubscription was significant, but he did not say by how much.

First Deputy Prime Minister Igor Shuvalov said that two weeks ago, the government held consultations at which the minimum placement price was set at around 33 rubles. "But we couldn't agree to this and decided to risk things, set the price at 35 rubles. Of course our agents were concerned, and this did little to encourage them," he said.

"Some interpreted this to be negative news, but that's not the case as it was at the time higher than the market," he said.

Shuvalov said there were significantly more bidders than there were shares. "The oversubscription was 28%. By quality, these were the best investment funds and shareholders who are going to be long-term shareholders in Alrosa," he said.

The placement as it happened

The order book was far from full as of last Tuesday: only 20% of the order book, or about $175 million-$200 million, had been filled, one banking sector source said at the time. The largest order by then was from Citi, the source said. "But the situation is not indicative yet, because big orders on Thursday-Friday and a big inflow from Russian institutional investors are possible," the source said. Institutional investors might be interested in Alrosa shares because the diamond company might be included in the MSCI Russia index in February, which would bring in money from index tracking funds.

The situation changed dramatically on Tuesday night, sources told Interfax. The order book was filled more than 80% at the lower end of the price range, one source said. Another said it was almost completely filled and that the price might move up slightly to 35.50 rubles.

"Two American funds submitted big tickets, filling 60% of the order book," one banker said. Another source said one of the funds submitted an order for $300 million. Neither source could name the funds. "It's probably someone on the scale of BlackRock. But it's not yet known who," one source said.

Although there has been progress in filling the order book, "the time of quasi-sovereign investors will still come," a source familiar with the course of the IPO said. A source at an investment bank said on Wednesday that if the order book is not filled at 35 rubles by the end of the road show, the authorities might bring in the RDIF.

Although banks advised Alrosa to lower the price floor to 30-32 rubles, now the price range will certainly not change, one source said.

Russia does not have BlackRock funds of its own, but it does have large pension funds, some of them not alien to the state or Alrosa itself. One of them is Blagosostoyanie, one of the country's largest nongovernmental pension funds, which is closely related to Russian Railways (RZD) and which teamed up with Alrosa during the crisis to rescue KIT Finance .

"We're interested in participating in the IPO. We see great potential in such an investment considering Alrosa's attractive dividend policy, strong financial performance, considering its stability as a state company, as well as its clear development strategy," Blagosostoyanie executive director Yury Novozhilov told Interfax on Wednesday, adding that the fund had placed a substantial order in the offering.

Interfax understands Blagosostoyanie ordered 1 billion in Alrosa shares, which had little impact on the overall book-build. A source at an investment bank said on Wednesday that if the order book is not filled at 35 rubles by the end of the road show, the authorities might bring in the RDIF.

Late rally

The order book was ultimately oversubscribed by around a third, a source close to the deal told Interfax on Friday evening.

As expected, the shares will float at the lower end of the price range, which is 35-38 rubles a share. "Most bids are at the low end," the source said.

Another source confirmed what the first source said. "It's about $400 million oversubscribed," the source said. The whole deal will be $1.3 billion at 35 rubles a share.

"The price range was fairly aggressive for the market and even at the lower end it will be a very good deal," a source close to the placement process said.

This source said most demand was from institutional investors, who subscribed to around 80% of the IPO.

The order book was filled Thursday, including bids from the Russian Direct Investment Fund (RDIF). Therefore, the whole oversubscription was due to bids received on the last day of book building.

"Orders from market investors came in at the last minute," a source told Interfax.

In addition to the aggressive price range, a potential problem for the IPO could have been the Russian listing, as the shares are only being floated on the Moscow Exchange. However, Alrosa discussed the situation ahead of time with American funds and received assurances that they can buy shares in Russia, a source familiar with the deal said. But if liquidity will be insufficient, for example due to a large amount of shares being concentrated in the hands of a few investors, and there is a need to increase the free float, the company will seek a listing in London, the source said.

More privatization possible

The state will retain control over Alrosa following the sale of the 16% of its shares, Russian Prime Minister Dmitry Medvedev said at a meeting with deputy prime ministers on Monday morning.

"Opportunities for further privatization deals remain if the state retains a controlling stake," Medvedev said.

First Deputy Prime Minister Igor Shuvalov said any further steps to sell shares in Alrosa would be balanced.

"We won't rush into things. In any case the terms of the deal prevent the government from putting any more shares on the market within 180 days," he said.

The state budget will receive around 18 billion rubles from the sale of 7% of the shares in Alrosa. The budget of Yakutia, the mineral-rich Russian republic where Alrosa is based, will get around 18 billion rubles also from the sale of 7% and the company itself around 5 billion rubles from the sale of 2%.

Shuvalov said the Russian Federal Property Agency (Rosimuschestvo) and the government of Yakutia had "started to draft a shareholders agreement, according to which the Russian Federation and the Republic will jointly own a controlling stake and will vote in unison on several issues."

One of the terms of the agreement is that the federal and Yakutia governments will agree on further privatization steps.

Shuvalov said districts of Yakutia owned 8% of the diamond miner. "Local governments will not be party to this agreement, but liaison will have to be ensured, and the republic's authorities will assume that responsibility," he said.

The shareholder agreement should be finalized in the next ten days, he said.

The Russian state and Republic of Yakutia will maintain their controlling stake in Alrosa until the end of 2016, the deputy economic development minister and head of Rosimuschestvo, Olga Dergunova, told the press in Moscow on Monday.

"I note that the privatization plan for 2014-2016 shows the long-term reduction of the state [stake] to the level of 25% plus one share accordingly, and 25% plus one share remaining with Yakutia. In fact, this gives the state a controlling stake for the long-term period," Dergunova said.

Dergunova said that what Russia and Yakutia will do as far as the privatization of Alrosa goes down the road will be coordinated. "We don't want to do this [sell separately]. This coordinated sale we are now doing has shown its efficiency," she said.

"The approach to a coordinated sale [between Russia and Yakutia] is the same as the approach we plan to continue together with the republic," Dergunova said.

A shareholder agreement is being worked up "in order to determine a mechanism for coordination for the long-term period," she said. The stockholders have begun working on an agreement, she said.

The privatization plan needs to be adhered to, Dergunova said. "The government doesn't have any such plans today either for changing privatization plans or changing the approach," she said.

No foreign listing

There are no plans at the moment to list Alrosa's shares on international exchanges, Goldman Sachs managing director Sergei Arsenyev told reporters after the ceremony to mark the results of the Russian diamond monopoly's IPO on the Moscow Exchange.

"There won't be, it's not planned," Arsenyev said when asked about a listing abroad. Goldman Sachs was one of the coordinators of Alrosa's IPO.

Foreign investors filled about 80% of the order book for the IPO, with U.S. investors, including Oppenheimer and Lazard accounting for about 60%.

Arsenyev said "experience shows that an offering on the Moscow Exchange was not a barrier" for foreign investors. "There was no problem, the oversubscription demonstrates this