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Rumours are spreading that a state-owned Chinese company may come forward with a purchase offer for Belarus’ prized asset, potash miner Belaruskali.
By Leia Michele Toovey-Exclusive to Potash Investing News
Belarus seeks IMF loan
Belarus is dealing with a deepening financial crisis. The country has already received bailout loans from a Russian regional bank to help stabilize the country’s finances, however, it is in need of more money. Belarus has also turned to the IMF for further financial assistance, but has yet to receive any funds. The IMF is looking into researching Belarus’ economic policies, and will likely ask the country for certain reforms before they agree to a loan. Concerns have been raised that Belarus, a country which has been hit with political scandals, will not be willing to make the suggested changes. As such, the sale of Belaruskali will give the country some much needed currency while at the same time prevent it from having to comply with the IMF’s potential requests.
The price tag
Uralkali (LON:URKA) has been at the top of the list of potential purchasers of the Belarusian potash giant. Given Uralkali’s recent merger with Silvinit, a Uralkali-Silvinit-Belaruskali joint company would dominate the potash industry, controlling 45 percent of global production. However, Uralkali CEO Vladislav Baumgertner told reporters that the company and its partners will only be interested in purchasing Belaruskali if they calculate it as a deal that would create value for company shareholders. The price tag put on Belaruskali by Lukashenko may impede a “value adding” deal for Uralkali. Belarus wants $30 billion for Belaruskali, however, according to analysts, the company is likely only worth $20 to $25 billion.
Turning their backs on Mother Russia
China has surpassed Urakali as a possible purchaser supported by two key pieces of reasoning: payment and ownership. China has proven time and again its willingness to pay large sums of money to secure much needed raw materials. Furthermore, according to Lilit Gevorgyan, an analyst with IHS Global Insight who focuses on the former Soviet Union, Lukashenko would rather sell Belaruskali to China than to Russia on the sentiment that Belarus is already “too deep” in Russia’s pocket. Lukashenko would also be open to the sale of a stake in Belaruskali to a Chinese state-owned company. State-owned Chinese companies rumoured to be interested in purchasing Belaruskali include Sinofert Holdings Ltd. and China BlueChemical Ltd.
Feeding China
If China were to purchase Belaruskali it would gain access to much needed potash supplies, and would also cause the break-up of potash marketing company Belarusian Potash Co., which settles potash contracts on behalf of Belaruskali and the Russian miners. The move would be in-line with China’s overall strategy to meet its domestic need for resources through the acquisition of foreign assets. China, as one of the emerging markets, is becoming increasingly reliant on potash imports to feed its growing population.
In recent weeks, China’s need for potash has been evident. The country has signed multiple deals with companies for the supply of potash through the year. Contracts settled in June include an agreement with Belarusian Potash Corp. to supply muriate of potash to Sinochem and CNAMPGC at $470 a tonne, over the July 1-Dec 31 time period. The deal is for a minimum amount of 500,000 tonnes. Around the same time that the BPC deal was made, Canpotex made a deal with China to sell 630,000 tonnes of the nutrient in the second half of 2011, also at $470 a tonne.
In July, Arab Potash Company (AFM:APOT). signed a $145 million contract with China’s largest fertilizer holdings company, Sinofert Holdings Ltd., to supply 300,000 tonnes of potash this year, part of a long-term memorandum of understanding under which Jordan has agreed to supply China with regular shipments of potash until 2013. Also in July, Israel Chemicals (TLV:ICL) agreed to supply Chinese customers with 500,000 tonnes of potash during the second half of 2011. Prices were also disclosed at $470 per tonne.