icon bookmark-bicon bookmarkicon cameraicon checkicon chevron downicon chevron lefticon chevron righticon chevron upicon closeicon v-compressicon downloadicon editicon v-expandicon fbicon fileicon filtericon flag ruicon full chevron downicon full chevron lefticon full chevron righticon full chevron upicon gpicon insicon mailicon moveicon-musicicon mutedicon nomutedicon okicon v-pauseicon v-playicon searchicon shareicon sign inicon sign upicon stepbackicon stepforicon swipe downicon tagicon tagsicon tgicon trashicon twicon vkicon yticon wticon fm
17 Aug, 2010 07:48

Russian fertilizer market closer to a mega merger

Russia is moving closer to creating a new national fertilizer champion, with Suleiman Kerimov’s Uralkali and Silvinit, Russian potash producer, expected to merge in the near future.

Russia’s government is keen to support the fertilizer sector, as it provides the country's third biggest source of export revenues. The prime movers in the consolidation of the sector are billionaire Suleiman Kerimov and his associates, with the Russian metals tycoon having bought a controlling stake in agro-chemicals giant Uralkali.

Now two offshore firms, that are believed to be close to Kerimov, have bought 44% of Silvinit, the country's largest potash producer. This will be most likely added to those 25% in Silvinit Kerimov already owns.

The third piece of the puzzle will be when Uralkali launches a take-over bid for the unlisted Silvinit, which is expected to happen in the coming days. It would create the world's second biggest potash producer, but Dmitry Baranov, an analyst from Finam, believes the Russian anti-monopoly service will allow the deal with certain provisions.

“The Federal antimonpoly service will issue detailed instructions concerning a deal to merge Silvinit and Uralkali. Even if a structure with offshore companies is used. There will be strict limits for domestic pricing, with exports accounting for 80-90% of the companies’ profits.”

Agro chemicals are the third biggest export item for Russia after fuel and metals, and the government is keen to encourage its growth. The merged company of Uralkali and Silvinit would hold 30% of global potash reserves and 40% of global exports.

To justify its size, the new company would have to grow both domestically and internationally, with Anna Kupriyanova, a senior analyst at Uralsib Capital, adding that the new market giant will reshape the market itself and also change some regulations in it.

“As of today, the share of domestically consumed fertilizer in Russia is 10 % of what is produced in Russia. So, I expect this share will increase to 15-20% within 5-10 years. Obviously, the state will control these prices, and they have always had a huge discount to export prices, but I don’t think this will be too negative for fertilizer producers. The export policy will be completely different.”

The merger of Silvinit and Uralkali could be just the beginning of consolidation in the fertilizer sector. Recent history in Russia shows, as was the case with energy, that it takes time for a sector to take on a stable form, with the government playing an active role not just in its creation, but also in its operation through influencing domestic prices and export duties.