Uralchem Plans to Acquire $280 Million Perm Mineral Stake

Uralchem is in talks with Sibur Holding to buy 51 percent of OAO Perm Mineral Fertilizers in a deal valued at at least $280 million as it seeks to gain from rising fertilizer prices.

The acquisition, which would bring Uralchem’s total holding in the company to 98 percent, may take two to three months to complete, Chief Executive Officer Dmitry Konyaev told reporters today in Moscow. Konyaev said Perm Mineral is valued at $550 million. Sibur’s press office declined to comment.

The acquisition will help Russia’s second-largest nitrogen- fertilizer maker more than double urea output and boost ammonia production by 27 percent, according to the company’s data. Urea prices rose 28 percent in the third quarter from the first quarter, while ammonia prices added 8.5 percent, allowing Uralchem to boost profit and reduce debt.

“The plant in Perm is one of the best in the country and it is very modern,” Elena Sakhnova, an analyst at VTB Capital, said by phone. “Since Uralchem already holds a stake, no wonder they seek to consolidate the asset which will become the best in the holding.” The price is “reasonable,” she said.

Sibur, controlled by billionaires Gennady Timchenko and Leonid Mikhelson, had planned to sell its fertilizer assets to one buyer but instead decided to split the deals as separate bids gave the assets higher value, President Dmitry Konov said this week, according to Interfax.

Sales Surge

The company will sell its fertilizer assets in Siberia excluding the Perm plant to Siberian Business Union, the company said today on its website.

Perm Mineral’s urea output may reach 600,000 metric tons in 2011, while Uralchem will produce 499,000 tons, according to Uralchem. Ammonia output after the acquisition may rise to 712,000 tons from 562,000 tons this year.

Uralchem expects sales to surge 51 percent this year to $2.1 billion, while earnings before interest, taxes, depreciation and amortization will more than double to $763 million, Konyaev said. Net income may reach $397 million.

Uralchem, which scrapped a London share sale last year because of adverse market conditions, may revise the plan should it see a “good window” of opportunity and attractive acquisition prospects, Konyaev said.

The company decreased debt this year to “not more” than $1 billion at the end of this year from $1.36 billion at the end of 2010, it said today. Its net debt-to-Ebitda ratio will fall to 1.3 by the end of 2011 from 4.4 last year, it said.

Capital spending will rise from $115 million to about $150 million next year, including expansion into new products and the construction of an export terminal at Latvia’s seaport of Riga, Konyaev said.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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