Approaches to buy out OAO Uralkali’s billionaire owners prompted speculation that the world’s biggest potash producer may resume a marketing venture that controlled more than 40 percent of global exports.
A reunion would come too late to boost prices in the $20 billion market for the crop nutrient in the next year, according to analysts at VTB Capital and BCS Financial Group in Moscow.
Uralkali pulled out of its joint trader with Belaruskali in late July, accusing Belarus of selling potash outside the partnership. Belarus responded by arresting Uralkali Chief Executive Officer Vladislav Baumgertner and seeking the arrest of shareholder billionaire Suleiman Kerimov. Reports of a potential sale by Kerimov have boosted potash producers’ stock.
“There is no reason for this optimism,” VTB Capital’s Elena Sakhnova said by phone today. “Even if Kerimov sells, it will take time for a new owner to agree on terms of cooperation with Belarus. Even assuming the cartel will be back, it won’t help the market to recover quickly.” Sakhnova is Institutional Investor magazine’s top-ranked Russian industrial analyst.
Kerimov, who leads the group of Uralkali’s controlling owners, entered discussions with several potential bidders for Uralkali after Belarus arrested Baumgertner on Aug. 26. The CEO was accused by authorities in Minsk of abuse of office as the chairman of Belarusian Potash Co., the joint trading venture.
Baumgertner, who is being held in a KGB prison, said the end of the venture may erode prices. Uralkali said it would dump its strategy of pursuing price over volume as the BPC venture had done and instead increase production to capture a larger market share. The spot price for potash in China, the largest user, has since dropped to $325 a ton from $350 in July, according to data from Uralkali.
Belaruskali won’t renew cooperation with Uralkali unless the Russian producer changes its strategy or owner, Belaruskali CEO Valery Kirienko said on Aug. 19. Belarus President Aleksandr Lukashenko said last week he expects Russia to approach Belarus in an effort to restore cooperation in marketing potash. Belarus is seeking the arrest of four other Uralkali employees as well as Kerimov.
Russian entrepreneur Vladimir Kogan, a longtime ally of President Vladimir Putin, is seen as the leading bidder for Uralkali, three people familiar with situation said on Sept. 13. OAO Rosneft, Russia’s largest oil company, may outbid Kogan, RIA Novosti reported yesterday, citing a person familiar with situation. Vedomosti newspaper said today the buyer may be state-owned Rosneftegaz, which holds Russia’s stake in Rosneft.
Rosneft is lead by CEO Igor Sechin, another longstanding associate of Putin, who was a deputy prime minister before his appointment at the oil company. Sechin said Rosneft doesn’t have an interest in the potash business “for now,” Interfax reported late yesterday.
A spokesman for Kerimov’s Nafta Moskva investment holding company, Anton Averin, declined to comment when contacted by Bloomberg News.
Simply changing the ownership at Uralkali may fail to return the balance of power in the potash market to where it was before Baumgertner ended the alliance with Belarus, said Robert Chapman, the founder of Chapman Capital LLC in Manhattan Beach, California.
“BPC is dead no matter who buys Kerimov’s stake,” Chapman said in e-mailed comments. “It wasn’t working well before, as evidenced by Uralkali’s 40 percent first-half Ebitda decline.”
Uralkali’s market share fell to 17 percent in the first half from 22 percent a year earlier as a result of pursuing a “price over volume strategy,” a Sept. 10 presentation by the company shows.
Potash spot prices may remain at about $320 a ton in China and average $370 globally at least until the end of the first half of 2014, according to VTB’s Sakhnova. Should the two former Soviet Union producers restore their marketing venture, they will need to idle some capacity and also sell at prices below the levels achieved before the BPC break up, she said.
“Kerimov deformed the market and it won’t get back to where it was quickly,” said Kirill Chuyko, head of equity research at BCS Financial Group in Moscow. “Key people from BPC have left Minsk because of the fear they would be arrested for no reason. It will be hard to persuade them to return.”
The partners would need to negotiate a new venture, rather than restore BPC, and reaching an agreement would take time, Chuyko said today by phone.
Any new Uralkali owner will be taking a risk with his money, given the unpredictable outlook for potash prices, Boris Krasnojenov, a mining analyst at Renaissance Capital in Moscow, said last week.
Uralkali’s withdrawal from the BPC venture sent global potash companies shares down by more than 20 percent. Speculation that Kerimov will sell out has helped stocks recover. The stock jumped as much as 7.3 percent in Moscow today and traded up 5.2 percent by 4:40 p.m., while K+S AG stock advanced 2.5 percent in Frankfurt. Potash Corp. of Saskatchewan Inc. gained 2.2 percent in New York on Sept. 13 as Mosaic Co. added 3.6 percent.
Billionaires including OAO Russneft owner Mikhail Gutseriev, Vladimir Evtushenkov and Arkady Rotenberg have been linked with bids for Kerimov’s 22 percent Uralkali holding, Forbes Russia and Kommersant reported earlier this month. Evtushenkov told the Interfax news service he wasn’t in talks to buy Kerimov’s stake, and declined to comment when called by Bloomberg. Gutseriev didn’t respond to requests for comment. Andrey Baturin, Rotenberg’s spokesman, declined to comment on the reports, saying they were “just a rumor.”
New shareholders may calm the dispute with Belarus, according to Irina Lapshina, a Sberbank CIB analyst in Moscow.
“We believe that the new owners will likely restore the relationship with Belaruskali fairly quickly and get Uralkali back on its previous strategy of price over volumes, ending the potential price war on the potash market,” Lapshina said in a report today.
Uralkali’s press service declined to comment.