China to Sell Stake in Uralkali in $2.3 Billion Buyback

  • Uralkali raises buyback program to 24% after CIC tenders stake
  • Potash producer will buy back up to $2.26 billion of shares

China’s sovereign fund offered to sell its stake in Uralkali PJSC as the largest potash producer plans to delist its shares and as sustained weak demand threatens to undermine the stock’s price.

The tender of the 12.5 percent holding by Chengdong Investment Corp., a unit of China Investment Corp., spurred Uralkali to raise its buyback program 71 percent to $2.26 billion, the Russian company said in a statement Friday. 

China is the largest potash consumer and its purchase of a Uralkali interest in 2012 was viewed by analysts then as a potential threat to competition. Potash prices have fallen more than 30 percent since on oversupply.

“CIC’s investments in Uralkali turned out to be profit-driven instead of strategic,” said Gavin Ju, a Beijing-based analyst at researcher CRU International Ltd. “Naturally they want to sell out if there’s no sign of recovery in the potash market in the next few years.”

CIC bought its stake when Uralkali’s market value was close to $22 billion. It has fallen to $8.6 billion as potash prices dropped, Uralkali broke up a trading venture with Belarus that controlled 40 percent of global exports and flooding at its Solikamsk-2 mine threatened 18 percent of its capacity.

The buyback may lead Uralkali to delist its shares in London and Moscow if publicly available shares shrinks beyond a certain level, the company said in August. It increased the program to 24 percent, about the level of its free float. The previous plan was to spend no more than $1.32 billion to buy 14 percent. About 11 percent of the shares may remain in the free float after the buyback, George Buzhenitsa, a Deutsche Bank AG analyst, said by phone. The "CIC sell out is a surprise. It almost makes Uralkali closely held."

Uralkali got bids to repurchase 20.54 percent of its stock after CIC tendered its stake, the Russian company said Friday. It entered into an $800 million repurchase deal with VTB Capital this week to partially fund the acquisition.

The company jumped as much as 4.6 percent, the most in a month, and traded up 1.4 percent at 183.90 rubles ($2.80) as of 5:13 p.m. in Moscow. The potash producer is paying $3.20 a share or $16 a global depositary receipt.

Calls to the general office and press office of China Investment Corp.’s headquarters in Beijing went unanswered after regular business hours.

Russia has turned to China as a counterweight to U.S. and European sanctions imposed last year over the conflict in Ukraine. It has had mixed success so far as trade between the two nations fell by 30 percent in the first half.

(A previous version of this story corrected the total percentage of shares tendered by investors.)

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