Ofer, Leumi Lose Big on Plunging Israel Chemicals Stock

ICL shares plunged after Russian giant quits potash cartel.

The major shareholders of Israel Chemicals and its parent company, Israel Corporation, lost a pretty penny on Tuesday as the two companies' stock prices plummeted 18% and 20%, respectively, amid a sudden shake-up in the world market that threatened to push down potash prices.

Israel Corporation’s controlling shareholder, Idan Ofer, saw the value of his 51% stake fall NIS 1.5 billion in trading on the Tel Aviv Stock Exchange, while Bank Leumi, with an 18% stake, ran up a paper loss of NIS 600 million. Nevertheless, the market value of Leumi's stake in the holding company is still NIS 800 million more than what appears on its balance sheet, not counting any tax liability.

ICL shares plunged on Tuesday after Russian potash producer Uralkali said it was leaving the potash cartel led by Belarus Potash Company, which over the last decade has acted to keep prices high and boost production in a bid to increase sales to India, Brazil and China, where it will ship more than 2.5 million tons in 2013, up from 2 million last year.

ICL's latest contracts for potash - its best-selling product - are fixed at $400 a ton.

Potash prices rose sixfold from 2003 to 2008, trading above $1,000 a ton at one point, compared to production costs of around $60 a ton for Uralkali. Uralkali’s focus on volumes will leave the owners of the second, North American, cartel, Canpotex - Potash Corp. of Saskatchewan, Mosaic and Agrium - little choice but to follow suit.

All told, investors saw more than NIS 11 billion of their capital evaporate in Tuesday trading - NIS 8 billion in ICL, whose market cap sunk to NIS 37.2 billion, and NIS 3.2 billion in Israel Corporation, which owns just over half of ICL and saw its market valuation fall to under NIS 13 billion.

Israel Corporation shares steadied yesterday, to end down just 0.3%, at NIS 1,675. ICL fell more sharply, by 2.7%, to a closing price of NIS 28.48.

The Uralkali move may not spell entirely bad news for ICL, said Bank of America Merrill Lynch, predicting that lower prices would spur demand and increase volume sales.

“ICL will likely be an industry survivor ... but equally will undergo some margin erosion,” analyst Andrew Stott said in a comment issued yesterday. “There may, however, be a silver lining in all of this - a potential impact on the Israeli government’s review of royalty rates.”

The collapse of the potash market couldn’t have come at a worse time for Israel Corporation’s top executives.

A shareholder meeting scheduled for September 3 will determine whether CEO Nir Gilad, Chairman Amir Elstein, Chief Financial Officer Avisar Paz and Executive Vice President Eli Goldschmidt receive special bonuses, worth a combined NIS 11.2 million, as part of the company's planned split into two entities - one that will control ICL and trade in Tel Aviv, the other that will control most of the other holdings and be listed abroad. If approved, Gilad will receive NIS 4 million of the total.

Following the recommendations made by the Finance Ministry's Committee on Increasing Competitiveness, Bank Leumi will be forced to sell at least 8% of its Israel Corporation stock within the next six years.

The bank is counting on the split to increase the value of its holdings ahead of the sale, by aligning the two new companies’ market caps with the underlying value of their assets.

Eyal Toueg