* China's CIC acquires 12.5 percent stake in Uralkali
* Stake worth $2 billion after bond exchange
* Major consumer now represented as shareholder
* Russia, Belarus seek to revive sales alliance
By Polina Devitt and Ron Bousso
MOSCOW/LONDON, Sept 24 China acquired a 12.5
percent stake in Russian potash producer Uralkali in a
deal that could help Beijing secure stable supplies of the soil
nutrient, put new pressure on prices and reduce the chances of a
Russia-Belarus cartel being revived.
The investment by China's $575 billion sovereign wealth fund
China Investment Corp (CIC) is the latest twist in a
saga that began when the world's leading potash producer quit
the lucrative sales partnership with Belarus in July and led to
the company's chief executive being jailed.
Under the deal, Uralkali said on Tuesday that CIC had
received the stake in a bond exchange deal with Wadge Holdings
Ltd, which belongs to three shareholders including oligarch
The deal is a rare example of China, the world's largest
consumer of potash, acquiring direct ownership of Russian
natural resource assets, although it is only the latest in a
series of commodity-related investments by CIC.
It also coincides with speculation that Kerimov might sell
his 21.75 percent holding over a dispute that has soured
Uralkali sent the $20 billion global potash market into
turmoil when it quit the marketing alliance with state-owned
Belaruskali. Belarus hit back by arresting CEO Vladislav
Baumgertner after talks with the country's prime minister.
Some investors believe the Kremlin wants to repair the
alliance to avert a possible collapse in the price of potash,
which accounts for 12 percent of Belarus's state revenue.
"I can see little chance that the government would allow the
Chinese fund to acquire a much larger stake," said Boris
Krasnojenov, an analyst at Renaissance Capital in Moscow.
"There is no similar precedent in Russia, and the eventual
buyer would probably be a Russian player."
There are no negotiations to sell Kerimov's personal stake
to CIC, a source close to the businessman told Reuters.
CIC declined to comment.
While China is unlikely to support steps that would push up
global potash prices, and has little chance of being allowed to
increase its holding significantly, the minority stake should
facilitate smoother potash trading between the two countries.
"China wants to secure stable supplies of potash from the
Russians," one industry official said. "Having a big buyer as a
shareholder in a producer company would definitely have an
impact on the market."
A source familiar with the bond exchange said it was
triggered when Uralkali's market value fell below $20 billion,
while no cash changed hands in the deal. Chengdong Investment
Corp, a subsidiary of CIC, bought the exchangeable bonds from
Wadge last November.
Urakali's biggest rival, Canada's Potash Corp of
Saskatchewan, said it sees the Chinese stake as a "non
event" without direct implications for potash sales.
"I can't imagine there would be any associated transactions
with this thing that would impair the valuation of the remaining
(shares of Uralkali)," Potash Chief Financial Officer Wayne
Brownlee said at the Scotiabank Agriculture and Fertilizers
conference in Toronto. "It just doesn't make sense to me from a
business basis, and so I think this is purely a passive
investment at this stage."
One banker familiar with the deal said it is a logical
completion of November's bond purchases.
"CIC has an interest in taking a 10-year view and sitting
there as financial investors, not as interferers," he said,
adding that CIC might, however, act as a facilitator for Chinese
buyers of Russian potash.
Uralkali's equity market value is now $16.4 billion, valuing
the 12.5 percent stake at around $2 billion.
The transaction could seek to set a benchmark for a broader
change of ownership in a Kremlin-blessed deal that would bring
in one or more strategic buyers.
"It is a company that could be bought by a huge number of
Russian and foreign investors," First Deputy Prime Minister Igor
Shuvalov told Reuters on Monday.
Shuvalov sought to quash speculation that a Russian state
business might buy into Uralkali: "There is no sense for the
Russian government to take on the risks (of ownership) itself,"
he said at the Reuters Russia Investment Summit.
While Kerimov's foundation owns 21.75 percent of Uralkali,
his partners, Filaret Galtchev and Anatoly Skurov, own 7 percent
and 4.8 percent, respectively.
Kerimov is not under Kremlin pressure to sell down his stake
but might be willing to step back to resolve tensions between
Moscow and Minsk, the banker said.
China has in recent years increased efforts to secure its
needs for natural resources, in one case lending $25 billion to
Russia's state oil major Rosneft and pipeline monopoly
Transneft secured against long-term oil supplies.
The deal with Uralkali could strengthen China's position in
negotiations with other producers. China imports around 6
million tonnes of potash a year, more than 10 percent of global
demand, and the Chinese potash price is considered the global
Potash prices nosedived after the split between Uralkali and
Belaruskali in July, though many buyers continue to wait on the
sidelines as they expect further price decreases.
The joint venture - Belarusian Potash Co (BPC) - controlled
some 70 percent of the market together with Canpotex, a rival
North American alliance.
The deal could give Uralkali an upper hand in selling potash
in the Chinese market ahead of Canpotex, said an official at
Rashtriya Chemicals and Fertilizers Ltd , a leading
state-run Indian fertiliser company.
The deal is unlikely to affect Indian supplies, said the
official, who declined to be identified. India is the world's
second-largest potash consumer.
Uralkali shares closed down 1.7 percent in Moscow. Potash
Corp stock was down 0.6 percent in New York in mid-day trading.