Shares of Israel Chemicals Plunge After China Buys Stake in Russian Competitor

Chinese acquisition of Russian potash producer Uralkali seen as threat to other mineral exporters, including ICL.

Shares of Israel Chemicals fell as much as 5% on the Tel Aviv Stock Exchange on Tuesday after China Investment Corp. took a stake in Russian potash producer Uralkali, in a deal that could undermine efforts to restore both the global potash cartel and Israel Chemicals’ exports to China.
 
The deal was done amid speculation that tycoon Suleiman Kerimov might sell his large stake in Uralkali over a dispute between Russia and Belarus. 
 
Analysts said the Chinese government’s first direct investment in a producer of the soil nutrient often used in fertilizer follows a pattern of China’s acquiring direct control of overseas mineral companies to keep price and supply stable. As a result, they said, it threatens the exports of other major producers to the Chinese market, including Israel Chemicals, Canada’s Potash Corp. of Saskatchewan, the Belarus state-owned Belaruskali and Jordan’s Arab Potash Company. 
 
China, the world’s largest consumer of potash, accounts for about 15.5% of Israel Chemicals’ sales, which is much higher than its share of the global potash market. Israel Chemicals sells directly to Chinese wholesalers and local fertilizer companies rather than through importers. Under a three-year agreement signed last January, Israel Chemicals will export 3 million tons of the nutrient to China.
 
The China Investment Corp. deal could help Uralkali to sign a supply agreement with China for 2014, said Boris Krasnojenov, an analyst at Renaissance Capital in Moscow. “A Chinese representative may appear on the company’s board, while China is one of the main markets for Uralkali,” he said. “So, in theory this could affect the contract signing, not the price.”
 
The Chinese sovereign wealth fund China Investment Corp. acquired the stake by exercising some $2 billion in convertible bonds it held in Uralkali, the Russian company said Tuesday. CIC’s Chengdong Investment Corporation unit acquired the bonds from Wadge Holdings Ltd. in November.
 
China Investment declined to comment on deal.
 
Shares of Israel Chemicals ended the day down 3.5%, at NIS 28.95, in heavy trading of NIS 119 million, breaking a rally that had lifted its shares 13.5% over nine trading sessions.   
 
Uralkali, the world’s largest potash producer, sent the $20 billion global potash market into turmoil in July when it quit a marketing alliance with Belaruskali.
Both Russia and Belarus would like to see Uralkali and Belaruskali revive the alliance, which controlled two-fifths of the world market. But with China on board as a shareholder, it may become harder to curb sales volumes to underpin contract prices.
 
Kerimov’s foundation owns 21.75% of Uralkali. His partners, Filaret Galtchev and Anatoly Skurov, own 7% and 4.8%, respectively. The remaining 53.95% is officially free float, although Uralkali has disclosed that this includes shares that are held by subsidiaries and recorded in its accounts as treasury stock.

Bloomberg