Was Vybornov Fired For Financial or Political Reasons?

Alrosa chief Sergei Vybornov’s firing could be more a result of behind-the-scenes political manoeuvring than the previously stated “disapproval over his handling of a deep slump in the diamond market”, as the Russian daily Kommersant reported. The UK’s Financial Times online service reported that he had been fired “amid allegations by Russia’s budget watchdog that the company had blocked access to its accounts under his watch.”

Strangely, the accounting details sought by the Audit Chamber, the Russian government’s budget watchdog, are for the period 2005 to 2007 and 2008. Vybornov only took over as head of Alrosa in 2007.

The Financial Times report gives some insight into the matter when it states: “Analysts said the shake-up at the company, which is closely tied to Alexei Kudrin, the Russian Finance Minister who oversees it directly as head of its supervisory board, had likely come as a result of political infighting.

“But Sergei Markov, a Kremlin-linked political analyst, said it was impossible to tell whether the dismissal had come as a result of disagreements with the local administration in Yakutia, the Siberian region where most of the mines are based and which owns a 40 per cent stake in the company, or whether changes on the federal level of government were the cause. The federal government owns directly more than 50 per cent of the company.”

The FT report also quoted, Mikhail Beskhmelnitsyn, a senior auditor at the Audit Chamber, as saying that the chamber had appealed to the Finance Ministry as early as April to replace Vybornov over the alleged violations. This could be one of the reasons why Vybornov was not elected to Alrosa’s supervisory board at its annual general meeting on June 20.

Fyodor Andreyev, who has been named as Vybornov’s replacement, is the deputy head of the Russian Railways and in charge of its finances. As a finance man, he too would be reporting to Alexei Kudrin, the Russian finance minister, who was Vybornov’s political godfather and backer…

 

Blood Diamonds Are Back, The World Is Beginning To Say

My heart sank when I heard about Ian Smillie quitting the Kimberley Process. As I said in a previous post, he was something of the lead navigator for the process and his going meant that the process would not have an able hand at the helm.

Things have suddenly got a lot worse. Just read this report in the UK newspaper, The Independent. Whether or not there is a major problem right now is irrelevant. What matters is that the world thinks a good man got frustrated and that a crooked industry is back to letting things slide.

I’ve listened to all these people  like the Responsible Jewellery Council, De Beers and many other big names, go on about how much reputation matters. Well folks, our reputation is not holding up at all. Something needs to be done urgently to restore it. They should all pitch in and try and straighten things out at the KP.

 

Small Diamond Prices Jump To Almost Last Year’s Diwali Levels

While the Indian diamond industry is still struggling to cope with the effects of the recession in its main markets, particularly the US and Europe, its quick action in drastically cutting back production has begun to yield results in that prices of small goods have not only risen, they’re almost back to the pre-Diwali levels they were at last year!

In particular, VVS Stars (0.02-carats and below) and smaller goods have seen extremely strong price appreciation. But that’s because they are the bread and butter categories of the Indian industry and there aren’t anywhere near enough goods to meet market demand. But don’t expect any surge in production in response to this. The Indian industry is still in cutback mode and is feeling its way cautiously forward, checking the US market for any small signs of recovery and probing newer markets, particularly the erstwhile Soviet countries and the Middle East.

Expectations are also high for the India International Jewellery Show (IIJS) as the domestic jewellery market in India is doing well and a lot of export manufacturers are now retargeting their production towards it. A note of caution though. Everybody knows that gold prices are going to remain volatile and its not a question of whether gold prices will surge again but when they will rise. If gold turns expensive over the Diwali season, when the single largest chunk of non-bridal sales takes place, the domestic jewellery retail sector will see an immediate and disastrous evaporation of demand.

There’s no way of guessing whether or not this will happen so the best thing is to keep one’s fingers crossed and hope for the best!

 

Scottish Identity For Diamond Finance Icon

Talk about change. According to this report ABN Amro, hitherto the world’s largest diamond finance bank, has sought permission from the Reserve Bank of India (RBI), the country’s central bank, for a new licence to re-enter India under the Royal Bank of Scotland (RBS) name.

It’s a complicated story. When ABN Amro was bought by a consortium comprising the RBS, European banking and insurance giant Fortis and Spain’s Banco Santander in October 2007,Fortis got ABN Amro’s diamond finance business when the assets were divvied up. But Fortis didn’t (and still doesn’t) have a banking licence in India. So ABN’s Indian diamond business was placed in the care of RBS. Meanwhile, Fortis’ Dutch operations got into trouble and had to be bought out by another consortium consisting of the Dutch and Belgian governments as well as French financial giant BNP Paribas.

ABN Amro’s name has been synonymous with diamond banking the last couple of decades or so. But then, as the globalisation gurus said, the only constant in the world today is change itself…

 

Ian Smillie Leaves & The Diamond Industry Loses A Navigator

While I’m really upset about Ian Smillie’s leaving the Kimberley Process (click here for details in Chaim’s Memo), I also understand why he’s left and share some of his frustration at what’s happening.

I remember meeting him at the Kimberley Plenary in Delhi, the very last before India laid down the chair. He was beside himself with frustration at trying to get government’s to act against erring members. The problem is that the KP is run by the participating governments and as Ian put it, “Government’s don’t like criticising each other.”

Venezuela was at the top of the list of problems then and instead of tackling the problem honestly, the issue was finessed by having that country quit the KP entirely. This meant that Venezuela was no longer under the jurisdiction of the KP. This meant that a major embarassment was now removed and nobody had to do anything unpleasant. It made many in the KP very happy.

India was congratulated on having handled the organisation ’smoothly’ during its tenure in the chair and everyone went home with a sigh of relief. Not Ian. Those dodgy diamonds were still being smuggled into the world market and it bothered him even if nobody else seemed to care.

I worked with Ian some years ago on the initiative to set up the Diamond Development Initiative (DDI), which he now heads (he hasn’t given up on that thank god!) and I know how committed he is primarily to ensuring that right prevails. He swallowed a lot and persevered, coping and dealing with the hard-driving and frequently abrasive powers and personalities in the diamond industry and pressed ahead with setting up the organisation. And thanks to him, the DDI is a functioning entity today.

Ian’s presence in the KP was reassuring to me. With him there, you could be sure that the right thing would be done — even if it took a long time. Now, we’ll probably have more smooth, diplomatic solutions to ‘embarrassments’ and there’s even less chance that real issues will be tackled.

Meanwhile, there are real threats on the horizon. The World Federation of Diamond Bourses (WFDB) has just issued a bulletin asking all members to abstain from any dealings with two Lebanese whom they say are supplying diamonds to the radical Hezbollah group. While that is the right thing to do, this only serves to highlight the fact that diamonds can still be moved freely to all parts of the world without any legitimate audit trail — something the KP was supposed to provide.

The diamond industry never needed Ian more than it does today. And he’s gone.

 

IIJS Expectations Replace Usual Vegas Buzz In Mumbai

Off on Sunday to Vegas. Going to check out first the small GLDA show at the Mirage, which features plenty of Indians and many Asian gemstone dealers, and then of course, the Couture and JCK shows. This year though, there’s no buzz about Vegas the way there normally is in Mumbai. Vegas is normally the key to judging how the rest of the year, including the ever so crucial Christmas season, will play out in the US market.

There’s nothing happening in the US market right now and no one in Mumbai expects anything to happen for the rest of this year at least. Christmas has already been written off. There are no new lines or test products for the US markets to watch keenly. So no one’s really talking about Vegas.

On the other the other hand, everyone seems to think that upcoming the India International Jewellery Show (IIJS) in August is something to look forward to. Companies that seemed to have gone into hibernation are now coming forward with advertising plans, ideas for new lines and a great deal of expectation. The Indian domestic market and the surrounding Asian ones that do a lot of sourcing at the IIJS, are seen as the only ones worth focussing on at this moment. Right now, domestic jewellery sales in India are doing well and most think this year’s Diwali season will go well. IIJS is key to positioning oneself and stocking up for the Diwali season.

Still, the Indian market is nowhere near taking up the slack left by the downturn in the US and an uptick in the American market is something all Indian firms still long for. Let’s see what happens in Vegas.

 

A Glass Half Full Or Half Empty?

Hi, it’s been a long time since I posted anything. It’s been a pretty difficult period and Solitaire has been focussed on just staying in the game. Things are still difficult, but we’re now adjusted to the new situation and, of course, life goes on. So here’s a new post to get back into the blogosphere.

It’s interesting to see the stark difference in outlook between the mining companies and the diamond cutting and polishing industry. The former are focussed on clearing the process pipeline of the inventory that has been clogging it and causing it to sicken for some time. They’ve cut back production, slashed costs and are now seeing a ‘rise’ in demand and a ‘firming’ of prices, as well as a clearing of the pipeline as the shortages bring out the old and hitherto stuck inventory. The latter, however, are keenly aware that though welcome, these signs are only an indication that the production cutback is working. There is no actual increase in demand from the consumer — many think the drop in demand hasn’t bottomed out yet — and the so-called increase in demand and firming of prices is actually a result of a shortage of specific goods. In India, they also have to cope with the fact that there’s now way they can bring back the hundreds of thousands of workers who’ve had to leave because of a lack of work and the fact that more jobs cuts are in the offing.

Nobody denies that the fundamentals look good for diamonds and their future. For one thing, there won’t be enough to meet demand. They haven’t found any new mines lately and most of the existing ones have peaked and are likely to start declining in output in the near future. It goes without saying that prices will naturally rise. But that only means the prices of the diamonds themselves, something that will benefit the mining firms. But with so many other luxuries now competing for the consumer’s wallet, these shortage-induced price rises will have to be tempered with lower margins for the cutting and polishing industry in order to keep the final product competitive. Thus the fundamentals don’t look good for the long-term future of the cutting and polishing industry — unless something is done about getting back some of that market share that those other products have taken away.

The global diamond industry is collectively doing something about this last concern. But it is still in its very early stages. And while the global recession is on, there isn’t likely to be any rise in demand from the consumer in the near future. Meanwhile, life continues to be tough for the cuting and polishing industry.

 

Indian Diamond Industry Comes To Grips With Reality

The Indian diamond industry has finally taken a sensible step to cope with the current crisis situation it is in. The Gem & Jewellery Export Promotion Council (GJEPC) has asked its members not to import rough for a month from November 25. This is a heartening acknowledgement of the fact that the diamond industry should take responsibility for itself in the way it conducts business.

 

Despite the fact that De Beers no longer has a monopolistic stranglehold on world rough diamond supplies — and hasn’t had for some years now — the cutting and polishing industry is in a mess largely due to the fact that it has gone on functioning as though the old order is still relevant. The current situation is not entirely the outcome of the global financial meltdown. Cutting and polishing firms have cast common sense to the winds and overbid each other for increasingly scarce rough despite the fact that the global consuming markets were unwilling to pay higher prices for polished diamonds. They were in a profitability squeeze long before the global financial crisis hit.

 

Until very recently, the Indian diamond industry didn’t want to do anything about its own situation and instead bleated along with the World Federation of Diamond Bourses (WFDB) for mining companies to take the hit and stockpile their rough instead of selling it in the market. Though it is very doubtful whether this move will help prevent many job losses and the eventual closure of many cutting units, this is a move in the right direction. It is finally coping with reality.

 

Pasted below is the GJEPC’s official press release.

 

GJEPC TAKES STEPS TO STRENGTHEN DIAMOND INDUSTRY

 

Mumbai, November 14, 2008: The Global financial situation is causing a strain on the players throughout the diamond value chain.  In order to protect the interest of the industry at large the Indian Diamond Industry has decided to curtail import of rough Diamonds. This will also send signal to the banking system that the diamond industry will not increase its indebtedness at the time when our downstream colleagues continue to meet consumer demand – a demand heightened by  the inherent value which consumers attach to our product.

  

Therefore, The Gems & Jewellery Export Promotion Council has asked its members to cease the imports of rough diamonds for a month from November 25. Such import stoppage will help the industry face the challenge that has arisen out of turmoil in the global financial market.

  

Mr. Vasant Mehta, Chairman, GJEPC, observed “Our members have sufficient rough diamonds in stock to minimize the impact on our labour force”. Mr. Mehta added “Our move will basically cause fewer rough to enter the diamond pipeline and the producer companies will thus indirectly share in the financing burden and contribute to a faster restoration of normalcy in an otherwise healthy business”.

 

The Bharat Diamond Bourse Opens At Last!

It’s been a long time coming but it’s finally happened! The Bharat Diamond Bourse (BDB) now has a functioning office! What’s more, we may actually see the entire diamond trade make the move at last!

At a ceremony yesterday, the Gem & Jewellery Export Promotion Council (GJEPC) formally inaugurated its office at the sprawling facility in suburban Mumbai’s Bandra-Kurla complex. Sanjay Kothari, who until recently was the chairman of the GJEPC, had got fed up with all the delays and feet-dragging by the industry and took the decision to move major elements of the GJEPC whether or not the trade showed any signs of moving. The exhibitions cell, which organises and coordinates the India International Jewellery Show (IIJS) as well as the GJEPC’s participation in some 25 trade shows around the world, has moved as has the Promotion, Marketing and Business Development cell, which Sanjay Kothari now heads.

The rest of the GJEPC’s divisions will follow shortly. In fact, at yesterday’s function, BDB president Anoop Mehta said the bourse had decided to let the GJEPC have one of three possible locations to house its Kimberley Process division. Kothari’s reasoning was simple, let everyone start coming out to the BDB for essential meetings and they’ll get the necessary push to make the move themselves. Customs and some of the first industry offices are likely to follow by December 15^th.

The project has been in the pipeline nearly two decades. I attended the first meeting – it was in 1989 I think – at which then sightholder London Star’s S.G. Jhaveri announced that he would undertake the project to set up a diamond bourse. The land for the bourse was acquired in 1992 but Jhaveri’s untimely passing away derailed the project and then one thing after another kept it off the tracks.

 

The Discount Sale of ABN Amro

There’s something worrying about this report. Fortis Bank, which was part of a three-bank consortium including the Royal Bank of Scotland (RBS) and Spain’s Santander, that bought ABN Amro last year for a whopping $100.2 billion, is now itself struggling to survive, having run up losses so huge that it can’t cope. That in itself isn’t anything remarkable – we’ve just seen some of the bluest of blue chip banks go under. What worries me is the fact that Fortis might sell the ABN Amro Diamond Division shares (which were what fell into Fortis’ lap after for less than its acquisition price of $35 billion.

Selling off assets is a pretty standard way of recouping losses. But even if you’re in a tight corner yourself, the marketplace is usually willing to pay top dollar for any first class assets you might have. In fact, you might get more than you imagined if a bidding war ensues. What this report makes clear is that there aren’t any takers for ABN Amro – at the price it was acquired for. Granted, ABN Amro might have been bought at too high a price. It was acquired after a tough and somewhat bitter bidding war between the RBS-led consortium and Barclays, which had strengthened its war chest with an infusion of capital from China. Still, if any other bank thought that the diamond industry’s “long-term fundamentals are sound” as all the mining companies keep telling us, they might have coughed up the big ticket price planning for future growth.

As thing s stand, the world’s biggest diamond financing bank doesn’t look attractive unless Fortis sells it at a discount. By the way, when the deal went through last year, Fortis was reluctant to take over ABN Amro’s diamond division! So much for sound long-term fundamentals.