UPDATE 2-Alrosa recommends record high dividend amid strong demand for diamonds

* Alrosa recommends divs of 9.54 rbls/share for H2 - 80% of FCF

* To stick to dividend policy when deciding on payments this year

* Strong demand reduced its diamond stockpile to 12.8 mln carats (Writes through to add comment by Alrosa’s CFO on this and future dividends, market situation)

MOSCOW, April 28 (Reuters) - Russia’s Alrosa, the world’s largest producer of rough diamonds, has recommended a record half-year dividend payment of 70.3 billion roubles ($938 million) representing 80% of its free cash flow (FCF), the state-controlled company said on Wednesday.

The company, which competes with Anglo American unit De Beers, is generous with payments to shareholders after almost zero sales around the same time a year ago when it was considering seeking state help to weather the first outbreak of the coronavirus pandemic.

The pandemic is yet to end, but “people are tired of isolation and are ready to buy gifts for loved ones”, Alexey Philippovskiy, Alrosa chief financial officer, told Reuters.

Demand in the United States, which accounts for half of global sales of diamond jewellery, is up due to a high number of weddings, some of which were delayed after the pandemic broke out last year.

Purchases of wedding rings with large diamonds are also up as some wedding costs - large parties and honeymoon trips - are limited and, thus, free up part of the budget, CFO said.

Global demand for rough diamonds started to recover in the second half of 2020 and this process continued in 2021. This helped Alrosa to slash its stockpile to 12.8 million carats from 20.7 million carats at the end of 2020.

“The market situation is good: we are raising prices - gem-quality price index is already above the pre-pandemic level,” Philippovskiy said.

Alrosa’s recently updated dividend policy allows payment of 70-100% of the FCF in semi-annual dividend if its net debt to EBITDA ratio is below 1. This ratio was at 0.4 at the end of December.

“So, 80% is neither the maximum nor the minimum which we could have paid,” CFO said, referring to Wednesday’s dividend recommendation.

The company expects its net debt/EBITDA ratio to stay below 1 at the end of 2021 and plans to stick to the same dividend policy when taking a decision about payments this year, CFO said. The payments could exceed 100% of FCF if net debt turns negative. ($1 = 74.9225 roubles) (Reporting by Polina Devitt; editing by Jason Neely and Emelia Sithole-Matarise)