The Alrosa Supervisory Board approved the acquisition of a 100% stake in Kristall, the leading polished diamond manufacturer in Russia and Europe, at its meeting on September 24th. Alrosa will acquire the company from the Russian Federation represented by the Federal Agency for State Property Management (Rosimushchestvo) on the terms set forth in the decree of the Russian government.
The value of the 100% equity interest in Kristall was determined on the basis of an independent appraiser’s report, at RUB 1.886 billion ($29 million).
Sergey Ivanov, Alrosa’s CEO, said, “On the back of the increasingly complex economic environment, Kristall has been going through some financial challenges in recent years. However, the business maintains its output volumes being Russia’s largest producer and exporter of polished diamonds, boasting rich heritage, state-of-the-art equipment, and extensive expertise in rough diamond cutting. We are by far not a newcomer to the sector: our Diamonds Alrosa branch makes around 20% of polished diamonds in Russia. After consolidating Kristall, our share in the Russian market would reach as much as 70%.
“We will focus our efforts on developing new sales channels, including those in the US and Chinese markets, while also improving production efficiency by leveraging the latest diamond processing technologies, automating routine operations, and creating competence hubs to bring together high-tech equipment and industry professionals. We expect that our efforts to merge our cutting facilities will help reduce production costs and, subject to a favourable market environment, take up a considerable share of the market for best in class polished diamonds.”
Alrosa’s Supervisory Board assigned the company’s chief executive officer to enter into a sale and purchase agreement for Kristall’s shares under the conditions proposed by Rosimushchestvo.
By the end of the year, the management is to prepare and submit an action plan to operate and develop Kristall as part of Alrosa Group to the Supervisory Board for consideration.
“Despite the fact that Alrosa is currently a key supplier of rough diamonds to Kristall, it accounts for as little as 0.5% of Alrosa’s total sales of rough diamonds. The deal value is less than 1% of Alrosa’s net assets and, according to our estimates, the purchase price will not exceed Kristall’s net assets at the date of the transaction,” said Alexey Philippovskiy, deputy CEO of Alrosa.
The Kristall diamond factory was founded in Smolensk in 1963. Currently, Kristall processes over 200,000 carats of rough diamonds per year, with 90% of diamond feedstock supplied by Alrosa. Kristall’s international operations are run through its trade offices in the US, Hong Kong, and Belgium. The company’s total headcount exceeds 1,800 people.
In 2018, Kristall production and sales were 105,700 carats and 111,700 carats of polished diamonds, respectively. Its total revenue amounted to RUB 12.8 billion ($199 million), and net profit reached RUB 40.7 million ($631,545).
In 2002, Kristall launched its own jewellery production. Its retail chain Smolensk Diamonds has over 50 points of sale in 30 Russian cities. Kristall’s other entity, Almaz Servis, produces tooling and equipment for the diamond industry.