Billionaire Suleiman Kerimov and his partners in OAO Uralkali (URKA), the largest potash producer, sold bonds to China’s sovereign wealth fund and VTB Capital that can be exchanged for shares valued at about $3.2 billion.
Chengdong Investment Corp., a unit of CIC International Co., and Moscow-based VTB Capital bought bonds from the shareholders that mature in 2014 and are exchangeable into a 14.5 percent stake in Uralkali, the fertilizer producer said today in a statement. Uralkali had a market value of about $22 billion as of yesterday’s close.
CIC International can convert its investment into a 12.5 percent stake in Uralkali’s ordinary shares, the Chinese company said today on its website.
Kerimov and his partners controlled as much as 55.3 percent of Uralkali as of Aug. 13, Uralkali’s website shows. Kerimov’s group bought into the company in 2010 and last year merged Uralkali with OAO Silvinit, which at the time was Russia’s biggest producer of potash, a potassium-based compound used to strengthen plant roots and protect against drought.
Uralkali won’t be party to the transaction, and the bonds won’t be listed, according to the statement.
CIC bought bonds from Wadge Holdings Ltd., owned by billionaires Kerimov, Filaret Galtchev, Anatoly Skurov and Zelimkhan Mutsoev, while VTB purchased notes exchangebale into a 2 percent stake controlled by Skurov, according to data on Uralkali’s website. The only major shareholder group of Uralkali not to participate in the deal was Alexander Nesis, the data show. Nesis is the Polymetal International Plc billionaire who is selling stock in Nomos Bank.
A sale of the stake in the Berezniki-based potash producer may help Kerimov and his partners repay some of the funds they borrowed from VTB Group, Russia’s second-largest state bank, to acquire their Uralkali holding, Alexei Morozov, a UBS AG analyst in Moscow, said by phone.
Alternatively, Kerimov and partners may use the funds to bid for the 37.8 percent of Polyus Gold owned by billionaire Mikhail Prokhorov, Dmitriy Kolomytsyn, an analyst at Morgan Stanley in Moscow, said by phone. The stake has a value of $3.7 billion based on today’s share price.
Prokhorov’s Onexim Holdings Ltd. is considering the sale of some or all of its Polyus Gold stake, the company said Sept. 12. Kerimov’s Nafta Moskva holds 40.2 percent of Polyus.
The deal marks CIC’s second investment in a company where Kerimov is a shareholder. In April, CIC agreed to buy 5 percent of Polyus Gold International Ltd. (PGIL) and VTB acquired 2.5 percent in a combined $635.5 million deal.
It also marks the Chinese company’s expansion in Russia. The two countries can do more to invest in Russian industries excluding oil where demand will probably weaken due to efforts to promote renewable energy and explore shale gas, Jin Liqun, chairman of CIC’s supervisory board, said at VTB Capital’s Russia Calling investment forum last month.
CIC last year agreed to invest $1 billion along with the Russian Direct Investment Fund in a Russia-China fund for Russia, Kazakhstan and Belarus with an initial focus on agriculture, consumer products and green energy, rather than natural resources.
Kerimov and his partners are seeking to bring in China’s sovereign wealth fund as an investor, three people familiar with the matter said earlier today. Uralkali fell 1.4 percent to 234.98 by 2:38 p.m. in Moscow, reversing gains of as much as 1.7 percent. The Micex Index declined 0.3 percent.
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