Russian state diamond miner Alrosa has started to feel demand on the market for the first time this year, but will depend on the state to manage its $3.6 billion debt, Alrosa's spokesman said yesterday, Reuters reported.



Alrosa sold $66 million worth of diamonds on the market of in August, according to the Reuters report. These were the first sales of the year to anyone other than its buyer of last resort, the Finance Ministry controlled State Precious Metals and Gems Repository (Gokhran), it said.



"We have managed to start paying down our debt because we have started selling our output to the market again," the spokesman said. "We sold rough and cut diamonds worth $66 million in August."



Alrosa paid off 2.8 billion roubles ($88.27 million) owed to Russia's largest private lender, Alfa Bank, under a newly struck restructuring deal, the companies said on Monday, according to the report.



"Diamond mining company Alrosa has redeemed an overdue loan for 2.8 billion roubles. Three other loans for 2.8 billion roubles, $48 million and $52 million respectively, the company will pay back in 2010," Alexey Zotov, director for major corporate business at Alfa Bank told Reuters.



The rouble loan bears a rate of 15% while the dollar-denominated loans pay 13 and 13.25% respectively, plus the restructuring fee.



Alrosa posted a net loss of 14.7 billion roubles for the first six months of 2009 under Russian accounting standards as diamond sales plummeted in the global economic recession. It is expected to rely on more government purchases to keep cash coming in, a Gokhran source told Reuters.



Gokhran bought diamonds worth 14 billion roubles for state reserves in the first half of the year, and Alrosa was seeking to sell Gokhran another $3 billion worth of gems during 2009-2010 to earn enough to serve the company's outstanding debt, which totaled $3.6 billion at the beginning of 2009, according to the Reuters report.



"The company hopes shareholders will help it to restructure the short-term debt and will increase the diamond purchasing from the State Reserves to help the company to pay the debt from its own account," the source close to Alrosa said, adding that Gokhran had not decided on future purchases.



Alrosa earned 1.57 billion roubles in 2008. If Gokhran maintains its diamond purchases, it hopes to break even in 2009 despite recent heavy losses, Alrosa's spokesman said.



Early in the crisis, Alrosa acted as a state agent in the bailout of Russia's first victim of the financial turbulence, investment bank KIT Finance.

Alrosa has already decided to sell off non-core assets - specifically its domestic gas and oil assets - to state-controlled VTB bank, one of its major creditors, for around $600 million, the report said.



Alfa Bank, controlled by billionaire Mikhail Fridman, is widely known for a tough approach to the debt restructuring process and is involved in dozens of court cases to retrieve debts from troubled borrowers.



Among them are companies controlled by indebted businessman Oleg Deripaska, who is near a deal with a 70-strong pool of creditors to restructure $7.4 billion in foreign debts owed by aluminum giant RUSAL, Russia's biggest debt settlement, said the report.



Early in the process the creditors' club sought state intervention in a dispute between Alfa and RUSAL.