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Last updated: November 9, 2012 8:14 pm
Russian state lender VTB and the China Investment Corporation have secured the option to take a 14.5 per cent stake in Russian fertiliser manufacturer UralKali, after the two groups bought about $3bn in bonds that they will later be able to convert into shares.
The deal highlights greater interest in China in Russia’s resource sector, and follows CIC taking minority stakes in Polyus Gold, one of Russia’s largest gold miners, and Russia Forest Products, its second-biggest forestry company.
VTB and CIC have bought the bonds from Uralkali’s largest shareholder, the Kremlin-friendly oligarch Suleiman Kerimov, and three of his partners.
Should the new bondholders choose to exchange the paper, due in 2014, into shares, the Chinese group will take a 12.5 per cent stake in UralKali while VTB will hold 2 per cent.
It is the second deal in six months where VTB and CIC have forged ties with a group part-owned by Mr Kerimov. The tycoon owns a 18.1 per cent stake in UralKali and a 40 per cent stake in Polyus Gold, as well as a small stake in VTB.
It was with the help of VTB loans that Mr Kerimov built up a sizeable stake in UralKali in 2010, ultimately allowing the tycoon to orchestrate a $24bn merger between UralKali and its domestic rival Silvinit.
Steven Dashevsky of Dashevsky & Partners, a Moscow-based fund, questioned why a Russian bank was now deciding to invest into a fertiliser producer, especially one like UralKali, which faces problems with its largely Soviet-era infrastructure.
“All of the debate of Uralkali’s future always centred on its sale to a strategic investor like BHP Billiton or PotashCorp, which would have made sense and created an idea of what UralKali’s strategy looks like,” Mr Dashevsky said.
Shares in the potash producer fell 3.8 per cent on Friday.
Nafta Moskva, Mr Kerimov’s investment vehicle, was unavailable for comment on Friday evening. UralKali said it welcomed the involvement of VTB and CIC, which it described as “reputable strategic investors”.
The transaction comes amid consolidation in fertiliser. PotashCorp of Canada has approached Israel Chemicals with a bid to buy the smaller company – a deal that has been delayed due to Israel’s upcoming presidential elections.
The potash industry, which entered the spotlight following the 2007-08 global food crisis when the price of potash jumped 10-fold, has seen a round of consolidation has concentrated more than 80 per cent of global potash supplies, a key nutrient for agriculture, in the hands of just six companies: Potash, UralKali, Belarus-based Belaruskali, Mosaic of the US, ICL of Israel and Germany-based K+S.
The concentration is worrying some big importers, including China, India and Brazil, which lack domestic potash resources.
In the clearest sign of the concerns in Beijing about supply of potash, several Chinese state-owned companies, including Sinochem, mulled over a bid for PotashCorp after BHP Billiton launched a $39bn hostile takeover for the company in 2010.
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