China gets stake in Russian potash giant
China acquired a 12.5 percent stake in Russian potash producer Uralkali in a deal that could help Beijing secure stable supplies of the soil nutrient, put new pressure on prices and reduce the chances of a Russia-Belarus cartel being revived.
The investment by China's $575 billion sovereign wealth fund China Investment Corp (CIC) is the latest twist in a saga that began when the world's leading potash producer quit the lucrative sales partnership with Belarus in July and led to the company's chief executive being jailed.
Under the deal, Uralkali said on Tuesday that CIC had received the stake in a bond exchange deal with Wadge Holdings Ltd, which belongs to three shareholders including oligarch Suleiman Kerimov.
The deal is a rare example of China, the world's largest consumer of potash, acquiring direct ownership of Russian natural resource assets, although it is only the latest in a series of commodity-related investments by CIC.
It was not immediately clear why Russia had allowed the Chinese to take a stake. The deal, however, coincides with speculation that Kerimov might sell his 21.75 percent holding over a dispute that has soured Russia-Belarus relations.
Uralkali sent the $20 billion global potash market into turmoil when it quit the marketing alliance with state-owned Belaruskali. Belarus hit back by arresting CEO Vladislav Baumgertner after talks with the country's prime minister.
Some investors believe the Kremlin wants to repair the alliance to avert a possible collapse in the price of potash, which accounts for 12 percent of Belarus's state revenue.
"I can see little chance that the government would allow the Chinese fund to acquire a much larger stake," said Boris Krasnojenov, an analyst at Renaissance Capital in Moscow.
"There is no similar precedent in Russia, and the eventual buyer would probably be a Russian player."
There are no negotiations to sell Kerimov's personal stake to CIC, a source close to the billionaire businessman told Reuters.
CIC declined to comment.
Although China is unlikely to support steps that would push up global potash prices, and has little chance of being allowed to increase its holding significantly, the minority stake should facilitate smoother potash trading between the two countries.
"China wants to secure stable supplies of potash from the Russians," one industry official said. "Having a big buyer as a shareholder in a producer company would definitely have an impact on the market."