Tycoon Kerimov cornered in Russia-Belarus potash row

Thu Sep 12, 2013 9:37am EDT

* Collapse of potash cartel triggers cross-border feud

* Speculation Kerimov will sell Uralkali stake

* Putin's reticence signals loss of Kremlin support

By Megan Davies and Polina Devitt

MOSCOW, Sept 12 (Reuters) - Russian tycoon Suleiman Kerimov built his multi-billion-dollar fortune with an appetite for risk, debt and excellent political connections.

Yet there are signs that the secretive mining tycoon has used up his credit with President Vladimir Putin, who exerts a tight grip over the strategic natural resources that fuel Russia's $2 trillion economy.

The 47-year-old from Dagestan has found himself in a tight spot after his company Uralkali pulled out of a potash cartel with Belarus in July, upsetting the market and infuriating a close - if difficult - ex-Soviet ally.

He might have been betting a lower price would force his rivals out of business so Uralkali could gain market share and then charge a higher price for the fertiliser ingredient, with the blessing of the Kremlin.

But if that was the strategy, it appears to have backfired. The company's CEO was arrested in Belarus for abuse of power, sparking speculation that Kerimov has come under pressure to sell his $3.5 billion stake in the world's top potash producer.

"It's turning out to be a bigger mess than he ever imagined and the question is why he did it," one financial source, who spoke on condition of anonymity, said of Kerimov.

"You don't go into such a situation without having backing from someone ... Maybe he did have some conversations but they weren't high enough and it's all turning out quite badly."

Kerimov prospered during the four-year presidency of Dmitry Medvedev, pulling off a $24 billion merger that put Uralkali in control of 40 percent of the $20 billion global potash market.

But, with Putin's return to the Kremlin last year, his influence has shown signs of waning. Without a viable political 'krysha', or 'roof', he may struggle to keep his stake or sell at a good price.

"Mr Kerimov is a financial investor, i.e. thinks about (a) sale every day since acquisition, and even before," said a source familiar with his thinking. The source rejected the notion that Kerimov may be vulnerable to a conspiracy in which Putin loyalists were seeking to sideline a pro-Medvedev faction.

A spokesman for Kerimov's foundation did not reply to questions submitted by fax and calls to his office and mobile phone went unanswered.

Kerimov's empire is built mainly on Russia's vast natural resources. He is the largest shareholder in gold miner Polyus but is also known to have bought Wall Street banking stocks after the 2008 crash.

His fortune peaked at $17.5 billion in 2008 before slumping to just $3 billion the following year, according to Forbes magazine. He was estimated to be worth $7.1 billion in March, still plenty to fund a fast-paced life style.

He has a seat in Russia's upper house of parliament and, like other Russian oligarchs, owns a top-flight soccer club, Anzhi Makhachkala.

Kerimov rarely appears in public however, preferring to keep a low profile although he made headlines when he was badly burned when he crashed his Ferrari Enzo into a palm tree on the French Riviera in 2006. His TV starlet passenger fled the scene.

SCOUNDRELS

Belarussian President Alexander Lukashenko blamed "Russian scoundrels" for the collapse of Uralkali's export partnership with state-owned Belaruskali in July.

Within a month, Belarus had arrested Uralkali CEO Vladislav Baumgertner, a Kerimov protege who had been lured to a meeting with Lukashenko's prime minister. Paraded in handcuffs on state television, Baumgertner was later charged with abuse of office and faces up to 10 years in jail.

Such treatment would normally precipitate a tough response from the Kremlin, which rarely pulls its punches if Lukashenko strays from a relationship long based on demonstrative loyalty towards Moscow in exchange for economic and financial support.

Putin, in his first reaction last Friday, called for a resolution to the dispute. But he also said he didn't want to "kick up a fuss".

Speculation Kerimov may sell the 21.75 percent stake in Uralkali, held through his foundation, was fuelled last weekend by a Facebook post by lawyer Alexander Dobrovinsky that talks with pro-Putin businessmen were under way.

Although Uralkali's shares have since rallied, erasing most of their recent losses, none of the buyers named in the unsourced reports has come forward to confirm their interest.

They include: Arkady Rotenberg, a construction tycoon and Putin's former judo sparring partner; Mikhail Gutseriev, founder of oil firm Russneft; and banker Vladimir Kogan.

Norilsk Nickel, the world's top nickel producer, and Vladimir Evtushenkov, owner of oil-to-telecoms conglomerate Sistema , have denied being interested.

Sources close to Vladimir Potanin, the billionaire CEO of and a shareholder in Norilsk, also say they are not interested in talks or even an approach from Kerimov.

Now would be an inopportune time to sell - Uralkali's shares have nearly halved since 2011 and the company's prediction of falling potash prices have made investors bearish.

Analyst Kevin Whyte at VTB Capital said chances of a deal were growing but: "There are three obstacles - finding a price to satisfy the buyer and seller, finding financing, and that the deal would only make sense if the person is sure they can make a deal with the somewhat unpredictable Belarussian side."

A second financial source said Kerimov might sell if offered a high premium, such as around 30-40 percent, to Uralkali's market price.

"He's a smart investor and has a track record of buying low and selling high," the source said, while cautioning: "Why would (buyers) offer such a premium? How do they make long-term money?"

KREMLIN SILENCE

Senior aides to Prime Minister Medvedev rallied immediately in support of Kerimov after news of Baumgertner's arrest broke on Aug. 26, in contrast to Putin who said only that he had not discussed the matter with Lukashenko. I

First Deputy Prime Minister Igor Shuvalov accused Belarus of stepping "way out of line". Deputy Prime Minister Arkady Dvorkovich endorsed a reduction in oil exports to Belarus for the rest of this year.

"It is indicative that old friends, the vice-prime ministers, spoke at once, and the Kremlin was silent," said a source familiar with Kerimov and others involved in Uralkali.

Dvorkovich, who has broad responsibility for energy policy, is however seen as no match for Igor Sechin, a former aide to Putin who, despite no longer being in government, is arguably Russia's second most powerful man.

Sechin, now head of state oil major Rosneft, has pushed back against the export cuts. He met Lukashenko in Minsk on Wednesday, and pledged that Rosneft would meet its supply obligations.

"Fulfilling contracts is a holy rule of business," Sechin, was quoted by Lukashenko's press service as saying, making no mention of Uralkali CEO Baumgertner.

Those comments are likely to fuel talk of an exit from Uralkali by Kerimov, and his replacement by an investor more amenable to the Kremlin.

That, in turn, could open the door to a revival of potash cooperation between Moscow and Minsk in a bid to stave off a slide in prices that - even if Uralkali is a low-cost producer - would inflict pain across the industry.

"When the whole thing happened it was so bizarre and no-one knew what was behind it...There was speculation the shareholder fell out of favour in Russia, that (it) was orchestrated, but no-one knows," said a third source.