China gets stake in Russian potash giant

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

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.

Supply Security

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."

A source familiar with the bond exchange said it was triggered when Uralkali's market value fell below $20 billion, while no cash changed hands in the deal. Chengdong Investment Corp, a subsidiary of CIC, bought the exchangeable bonds from Wadge last November.

Uralkali's equity market value is now $16.4 billion, valuing the 12.5 percent stake at around $2 billion.

The transaction could seek to set a benchmark for a broader change of ownership in a Kremlin-blessed deal that would bring in one or more strategic buyers.

"It is a company that could be bought by a huge number of Russian and foreign investors," First Deputy Prime Minister Igor Shuvalov told Reuters on Monday.

Shuvalov sought to quash speculation that a Russian state business might buy into Uralkali: "There is no sense for the Russian government to take on the risks (of ownership) itself," he said at the Reuters Russia Investment Summit.

While Kerimov's foundation owns 21.75 percent of Uralkali, his partners, Filaret Galtchev and Anatoly Skurov, own 7 percent and 4.8 percent, respectively.

China has in recent years increased efforts to secure its needs for natural resources, in one case lending $25 billion to Russia's state oil major Rosneft and pipeline monopoly Transneft secured against long-term oil supplies.

The stake in Uralkali would, however, mark an exceptional direct investment into a large producing company.

China, which holds $3.5 trillion in foreign reserves, recently agreed to buy 3 million hectares (7.4 million acres) of Ukrainian farmland, which would make Ukraine China's largest overseas farming centre as it strives to meet rising food demand.

Potash Market

The deal with Uralkali could strengthen the Chinese position in negotiations with other producers. China imports around 6 million tonnes of potash a year, more than 10 percent of global demand, and the Chinese potash price is considered the global benchmark.

Potash prices nosedived after the split between Uralkali and Belaruskali in July, though many buyers continue to wait on the sidelines as they expect further price decreases.

The joint venture - Belarusian Potash Co (BPC) - controlled some 70 percent of the market together with Canpotex, a rival North American alliance. Canpotex held in September negotiations with Chinese buyers on new supply contracts.

The deal could give Uralkali an upper hand in selling potash in the Chinese market ahead of Canpotex, said an official at Rashtriya Chemicals and Fertilizers Ltd , a leading state-run Indian fertilizer company.

The deal is unlikely to affect Indian supplies, said the official, who declined to be identified. India is the world's second-largest potash consumer.

Prev 1 2 Next All

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Comments (0) Leave a comment 

e-Mail (required)


characters left

LPV Seed Treater

The LPV Seed Treater has set a new standard boasting three configurable weighing methods for any-sized operation, a standard 42” ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form