EDITOR: | September 16th, 2013 | 1 Comment

Sold! Russian billionaire sells 22% stake in potash giant Uralkali; Potash stocks rally on news

| September 16, 2013 | 1 Comment
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Putin

Russian President Vladimir Putin

As reported last week, 47-year-old Russian billionaire Suleiman Kerimov was in talks to see his 21.75% stake in Uralkali, valued at approximately $3.7 billion. The hope among investors is that the potential move would ease tensions between former potash partners, Uralkali and Belaruskali. Now, apparently, that speculation has come to fruition as banker Vladimir Kogan has agreed to the multi-billion-dollar purchase — and has actually already paid the first 20% installment to Kerimov, according to the Russian news and information agency, RIA Novosti. Potash stocks are rallying on the news — and that’s a good thing.

It has been widely reported that Vladimir Kogan, 50, is very close to Russian President Vladimir Putin (the two men have been friendly since working together in their native city of Saint Petersburg); dubbed “Putin’s banker” by the American media, he is the former co-owner of Promstroibank, where President Putin kept his personal savings and was a shareholder. Between 2008 an 2012, Kogan — a former car mechanic — held a series of senior positions in Russia’s Ministry for Regional Development, most recently as deputy minister and head of the agency in charge of state housing construction. Such posts would command significant budgets and would, as a rule, only be entrusted to an individual who enjoys the personal confidence of Putin, who returned to the Kremlin in May of last year for a third presidential term.

A file photo shows Russia's PM Putin listening to Kogan, director of the construction department under the Ministry of Regional Development, during a ceremony marking the opening of a flood prevention facility complex outside St. Petersburg

Vladimir Kogan (pointing) and Vladimir Putin

Potash insiders are speculating (and hoping) that Kogan will be friendlier to Belarus and Belarusian Potash Company (or BPC, the Belaruskali and Uralkali potash marketing duopoly that controlled 40% of the world’s potash and which dissolved this past July 30th) could, potentially, reunify. However, that may not happen, as far as Uralkali is concerned. Statements made last week by Uralkali’s chairman Alexander Voloshin, a former Kremlin chief of staff, were clear: “the company has formed a new strategy following the breakup of BPC, which does not provide for reunification.”

It remains to be seen if Kogan leads Uralkali to rejoin BPC, and if Uralkali reverts to price-over-volume or, rather, adopts Uralkali’s new capacity utilization maximization strategy (Uralkali argued earlier last week, it is the lowest-cost producer, potash demand is elastic and other global competitors are not disciplined). Also, there is still the issue of Uralkali’s CEO Vladislav Baumgertner’s August 26th arrest and detention in a Minsk, Belarus jail, where he sits facing criminal charges. Baumgertner was arrested after traveling to Belarus for talks regarding the BPC breakup, at the invitation of the Belarusian Prime Minister Mikhail Myasnikovich. The potash giant’s CEO is facing up to 10 years in prison on charges of abusing power and seeking gain at the expense of Belarus. An appeal for his release was turned down last Friday. Analysts have described the arrest and allegations as nothing more than an act of sheer retaliation. It should be noted that Belarus is seeking the arrest of Suleiman Kerimov as well, for the same alleged crimes as Baumgertner. The deal for Kerimov’s Uralkali stake could be completed within two to three weeks, during which Baumgertner would be released, according to Russian lawyer Alexander Dobrovinsky.

Many potash industry insiders and online sources have postulated that it may have been Putin who quietly orchestrated Kerimov’s Uralkali sale to Kogan — Putin has denied these allegations. Putin has refrained from criticizing Minsk over the dispute, suggesting that the position of Kerimov had become tenuous after Kerimov angered a close ex-Soviet ally.

kerimov

Suleiman (Suleyman) Kerimov. Interpol denied Belarus’ request for issuing an arrest warrant against Kerimov last week.

Ultimately, potash prices have moved meaningfully lower since the end of July, and these lower price and earnings levels could be a new reality, at least for the short term. Some analysts predict potash prices to fall by the first quarter of 2014 to $325 per tonne in China and $375 per tonne in Brazil (the latter has already occurred). Financial reports indicate that Belaruskali and Uralkali traders are separately discussing contract re-pricing with multiple Indian potash buyers. Indian buyers are reportedly renegotiating existing potash contracts (signed in early 2013, and which expire in the first quarter of 2014) from $427 per tonne to a wide $330- to $380-per-tonne range. Considering crop prices are strained and potash industry surpluses are likely rising, potash industry stocks could be challenged to return to former trading ranges in the coming months — and present buying opportunities for investors, as a result. Many analysts feel that no matter what Uralkali does or doesn’t do, the worst-case scenario for potash is an average of $350 per tonne.

Even with this nearly $4 billion sale set to close in the coming weeks, it’s still uncertain exactly how things will play out in the potash world. But the current theory is that this sale is a way of placating the Belarusians and handing control of Uralkali to someone closer to the Kremlin who will encourage some sort of BPC remarriage. Only time will tell.


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Comments

  • Creativity proves a timely laxative for capital constipation in the junior markets.

    […] Sold! Russian billionaire sells 22% stake in potash giant Uralkali; Potash stocks rally on news […]

    September 23, 2013 - 2:19 PM

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