Russia: the potash market in turbulence

OAO Uralkali, Russia’s second-biggest potash producer, said in a statement on December 20 that it has offered to buy 20% of OAO Silvinit, , Russia’s biggest potash producer, for $1.4 billion and to exchange the remaining stock for its own shares. The two groups have a stock market value of almost $24 billion and, merged, they will be the second-largest potash producer in the world, behind Potash Corp. of Saskatchewan. An increased demand for potash as crop prices rise has poised potash to be a top commodity pick in 2011. Completion of the deal is expected in May, pending shareholder and regulatory approvals. Shareholders will receive 133.4 Uralkali ordinary shares for each ordinary share in Silvinit and 51.8 Uralkali ordinary shares for each preferred Silvinit share. A 75 percent majority approval by shareholders is necessary for the deal to go through. Extraordinary shareholders meetings for both companies are scheduled for the first week of February; the deal has already received binding approval from 53 percent of Uralkali and 67 percent of Silvinit shareholders. In the 2009, Silvinit produced 3.5 million tonnes KCl and Uralkali had an output of 2.6 million tonnes KCl. Seven companies — K+S, Potash Corp., Mosaic, OAO Uralkali, Silvinit, Belaruskali and Israel Chemicals Ltd. — control 85 percent of the world potash production, which is mainly used to shield crops from dryness and disease. Last summer Russian tycoon Suleiman Kerimov bought controlling stakes in both firms; Kerimov personally owns 25 per cent stakes in both firms but has control via the holdings of business partners. Some investors believe Kerimov’s plan is to sell on his holdings in the combined group at a profit. There have been no new significant entrants among the potash manufacturers for fully two decades. Russia produces in average about ten million tonnes potash and has reserves of some 2b tonnes. By 2012 they plan to add 3.8 million tonnes capacity. Russia has currently about 16% of the global potash market and they plan to reach 21% in 2014 (Uralkali + Silvinit 16%, and EuroChem 5%).

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