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Phosagro Mulls Merger With Own Production Units to Cut Costs

OAO Phosagro Chief Executive Officer Andrey Guryev
OAO Phosagro Chief Executive Officer Andrey Guryev said, “We confirm our target to spend not more than 50 percent of annual Ebitda on capital expenditure projects.” Photographer: Andrey Rudakov/Bloomberg

Jan. 27 (Bloomberg) -- OAO Phosagro, Europe’s largest phosphate-fertilizer maker, may consolidate its subsidiaries to cut costs and improve shareholder returns.

Phosagro is considering combining its OAO Apatit and three other units, Chief Executive Officer Andrey Guryev said in an interview in Moscow. The board will then consider merging the combined subsidiary with Phosagro, he said. The move would cut costs through streamlining accounts and reducing staff, said Guryev, who is scion of the family that controls the producer. There is no numerical target for job cuts, he said.

Guryev’s family sold 9 percent of Phosagro last year, raising $467 million as it sought to gain access to the MSCI Russia index to attract more investors. Phosagro went on to buy out minority owners of Apatit and plans to do the same at unit OAO Phosagro-Cherepovets.

“Trimming the corporate structure is a logical measure to cut costs,” Konstantin Yuminov, an analyst at Raiffeisenbank in Moscow, said by phone. “But should Phosagro decide in favor of merging its production assets with the parent company, it will need to be very cautious to do it in an investor friendly way.”

Phosagro shares rose 0.3 percent to 1,114.40 rubles by 10:46 a.m. in Moscow, extending gains from the past two weeks.

Potash Plunge

The company may borrow about $200 million from a bank for the Phosagro-Cherepovets buyout, Guryev said.

That would be the only major debt increase after Phosagro this month agreed a $440.6 million loan from a group of banks to fund the construction of an ammonia complex in Cherepovets in Russia’s northwest, he said. The complex will be Phosagro’s biggest investment until at least 2017 and will be able to produce 760,000 metric tons of the product annually, he said.

Net debt to earnings before interest, taxes, depreciation and amortization reached 1.75 at the end of 2013 after fertilizer prices decreased, Guryev said.

Neither Guryev’s family nor his company intend to sell more shares, considering them undervalued, he said. Fertilizer-maker stocks plunged after a collapse in potash prices when OAO Uralkali ended a trading venture with Belarus that had buoyed global prices for the commodity.

Even though Phosagro doesn’t produce potash, the rout affected all fertilizer prices and knocked 24 percent off the company’s value last year. It also put entry into the MSCI Russia index out of reach. The phosphate market has since stabilized, with company shares up 17 percent this year.

Potash projects are too capital-intensive for a CEO more interested in paying dividends, Guryev said. He won’t be diversifying into the commodity.

“That would come to me only in a nightmare,” he said.

To contact the reporter on this story: Yuliya Fedorinova in Moscow at

To contact the editor responsible for this story: John Viljoen at

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