Russia’s VTB Capital and China’s CIC Secure Option on UralKali

on Nov 13, 2012
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**VTB and CIC Buy $3bn of Bonds in UralKali**

China Investment Corporation (CIC) and Russian state lender VTB (MCX:VTBR) have secured the option to take a combined stake of 14.5 per cent in Russian fertiliser producer UralKali (LON:URKA, MCX:URKA), after the two groups purchased about $3 billion (£1.88 billion) in bonds due 2014 and exchangeable into UralKali shares, The Financial Times reported on 9 November 2012. Should the new bondholders choose to convert the paper into shares, CIC will take a 12.5 per cent stake while VTB will hold 2 per cent in the Russian fertiliser company.

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UralKali, the world’s largest potash miner by output, said in a statement that it welcomes the involvement of VTB and CIC, which it described as “reputable strategic investors.” The Russian company also announced that the bonds were sold by four of its core shareholders, led by tycoon Suleiman Kerimov, who owns 45.3 per cent of the group. The issuers of the bonds were Wadge Holdings Limited and Fenguard Limited, special purpose vehicles beneficially owned by the key shareholders of UralKali, the fertiliser producer added. Following the deal announcement on Friday, shares in UralKali declined 3.8 per cent.

**Second Joint Transaction of VTB and CIC**
The recent bond purchase is the second deal in six months where VTB and CIC have forged ties with a group part-owned by Mr Kerimov. In May, the companies bought a 7.5 per cent share in Polyus Gold (LON:POLG), Russia’s largest gold producer, where the tycoon owns a 40 per cent stake.
**Deal Highlights China’s Growing Interest in Russia’s Resource Sector**

!m[UralKali](/uploads/story/776/thumbs/pic1_inline.png)Since the 2007-08 food crisis when the price of potash — a key nutrient for agriculture — jumped tenfold, the global potash industry has seen a round of consolidation. As a result, currently over 80 per cent of global potash supplies are in the hands of just six companies: UralKali, Canadian PotashCorp (TSE:POT), Mosaic (NYSE:MOS) of the US, Belarus-based Belaruskali, Germany-based K+S (PINK:KPLUY) and Israeli ICL (TLV:ICL). This concentration is worrying some potash importers, including China which lacks domestic resources. In an earlier sign of Beijing’s concerns about potash supply, several Chinese state-owned companies considered a bid for PotashCorp after BHP Billiton (ASX:BHP) launched a $39 billion hostile takeover for the company in 2010.

CIC’s purchase of bonds in UralKali also highlights China’s increasing overall interest in Russia’s resource sector and follows CIC taking minority stakes not just in Polyus Gold, but also in Russia Forest Products, the country’s second-biggest forestry company.
**Why VTB Invests in UralKali?**
While CIC’s move has been explained with China’s growing interest in Russian natural resources, some analysts questioned why the Russian bank was now deciding to invest into a fertiliser producer, especially one like UralKali, which faces problems with its largely Soviet-era infrastructure.
Steven Dashevsky of Dashevsky & Partners, a Moscow-based fund, said: “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.”

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