(Updates Uralkali CEO comments on talks in 17th paragraph.)
July 8 (Bloomberg) -- China may thwart Russian efforts to control almost half the potash market as Belarusian President Aleksandr Lukashenko seeks to sell part of fertilizer producer Belaruskali to stave off a deepening economic crisis.
OAO Uralkali expressed interest last month in buying a stake in Belaruskali in a deal that would give the Russian company 45 percent of global potash production as food shortages boost demand for the potassium compound. Lukashenko, who values Belaruskali at $30 billion, may opt to sell a smaller holding to a Chinese company, said Lilit Gevorgyan of IHS Global Insight.
“The Russians realize that Lukashenko is short of cash and this is a fantastic opportunity,” said Gevorgyan, a London- based analyst who focuses on the former Soviet Union. “But he’s realizing that he’s finding himself increasingly in Moscow’s pocket, so if he could negotiate a deal and convince the Chinese to take a stake, it would be much better for him.”
The potential fight for Belaruskali, which produces 15 percent of the world’s potash, pits Russia’s drive to boost its influence in the former Soviet Union against China’s strategy of investing to secure the raw materials it needs for a burgeoning economy. Chinese bidders may include Sinofert Holdings Ltd. and China BlueChemical Ltd., according to analysts.
Belarus is the world’s third-biggest producer of potash, behind Canada and Russia, with China and Germany tied for fourth, according to the U.S. Geological Survey. The five countries accounted for 83 percent of production last year.
First Deputy Prime Minister Vladimir Semashko said in June 2010 that Belarus may sell a minority stake in Belaruskali to Chinese investors for as much as $7 billion. Belarus’s Belapan news service reported May 24 that talks were continuing.
“Chinese companies will definitely join in bidding,” said Xu Hongzhi, an analyst at Beijing Orient Agri-Business Consultant Ltd. State-owned companies “have a strong incentive to grab resources overseas because they’re short of the raw material and heavily dependent on imports.” Sinofert, China’s biggest fertilizer importer, is the most likely bidder, Xu said. China BlueChemical Ltd. is also a contender, Bank of America Merrill Lynch said last year.
Calls to Li Qiang, a spokesman for Sinochem Corp., Sinofert’s parent, weren’t answered. Xi Yuxin, Bluestar’s spokesman, said he had no information about interest in Belaruskali. Alexander Timoshenko, press secretary for the Belarusian Council of Ministers, declined to comment.
“The situation reflects both China’s increased confidence as a global player in the post-crisis world, and its fragility as an importer of natural resources,” said James Beadle, an investment adviser at Societe Generale SA in Monaco who focuses on emerging markets.
China has invested in projects from Latin America to Africa to secure access to resources. The Export-Import Bank of China agreed to lend Belarus $1.1 billion to help build a cellulose plant, improve highways and electrify a railroad, the state-run Belta news service reported June 14.
Belarus has set a high price for Belaruskali, which is probably worth $20 billion to $25 billion, said Marina Alexeenkova, a managing director at OAO Gazprombank. Russia, which coordinates potash sales with Belarus, would lose the trading arrangement if China were to buy into Belaruskali.
Chinese potash prices rose to $470 a metric ton last month from $115 in 2001 and peaked at $635 in April 2008 amid concern about global food shortages.
Lukashenko Under Pressure
The China-Russia competition comes as Belarus seeks aid from the International Monetary Fund, which has said the government must let the currency trade freely and ease price controls. Russia and other former Soviet countries agreed last month to lend Belarus $3 billion on condition that it sell $7.5 billion of state assets.
Lukashenko is facing unrest after Belarus devalued its currency by 36 percent in May as it struggled to close a current-account deficit that swelled to 16 percent of gross domestic product last year.
The 56-year-old former Soviet collective farm boss has been in power since 1994. His December re-election with almost 80 percent of the vote was condemned by international observers.
“The negotiations with the IMF are going to last some time,” Gevorgyan said. “The bottom line is that he’s trying to raise as much cash as he can because he knows there is a direct link between the worsening economic conditions and his future.”
Uralkali, controlled by billionaire Suleiman Kerimov and his partners, may be interested in Belaruskali if the price creates value for shareholders, Chief Executive Officer Vladislav Baumgertner told reporters June 28 in Moscow. No negotiations by Uralkali management are currently underway, he said. Kerimov’s Nafta Moskva has held talks with OAO Sberbank on financing a deal, bank CEO German Gref said June 16.
OAO Gazprom, Russia’s gas export monopoly, is ready to pay $2.5 billion for the half of Belarus’s natural gas pipeline it doesn’t already own, CEO Alexei Miller said June 30.
“Russia is using its economic strength to gain leverage across the former Soviet Union,” said Roland Nash, chief investment strategist at Verno Capital, a Moscow hedge fund that manages about $140 million. “If you can go and buy key assets in a country, then you have a lot of influence over it.”
--With assistance from Helen Yuan in Shanghai, Aliaksandr Kudrytski in Minsk and Yuliya Fedorinova, Anna Shiryaevskaya and Stephen Bierman in Moscow. Editors: Willy Morris, Andrew Langley
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