It is not a secret that in Russia, which some claim to be the world's biggest energy producer, with annual GDP of about $1.9 trillion, valuing for 2.8 percent of the world economy, the political situation may be judged by some experts as unstable. Country is facing presidential elections in the early 2012 with another complicated castling planned by Russian political leaders. While most of Russia’s publicity efforts has been concentrated on balancing country’s positive reputation, international media is full of stories with Russian businessmen advocating for international courts to settle their disputes of various kind which are called as the “billionaire battles”.
The word “oligarch” had became a widely recognized appellative name for the most rich and successful businessmen from Russia, everyone knows they influential and of course they do transfer their personal reputation to the image of Russia as a country on the international political arena. This is why current behavior of leading Russian businessmen so malapropos — their public skirmishes and conflicts advocated by international courts not only exploit international judicial system and trust of respectable business media, but also transfer negative reputation to the political situation in Russia.
Russian newspaper Vedomosti reported that Nafta Moskva, controlled by Suleiman Kerimov, is close to the acquisition of a controlling interest in Belaruskali from the Belarusian government for $15 billion.
Belaruskali is the fourth-largest potash producer globally. Last year, Suleiman Kerimov and partners bought a controlling interest in Uralkali, which is in the process of a merger with Silvinit. Uralkali and Belaruskali have been partners in potash exports through Belarusian Potash Company (BPC).
On November 17, Uralkali signed contracts for potash supplies with domestic NPK fertilizer producers, PhosAgro and EuroChem, at a price linked to the minimum potash export cost.
We recall the new potash pricing rules are in compliance with the recommendation, issued by the Federal Antimonopoly Service (FAS) to domestic potash makers and consumers on September 1 and revised as of November 3. In particular, in 2011-2012, producers must sell potash to domestic NPK makers at a minimum export price, due to be adjusted on a quarterly basis. Uralkali says the price for 1Q2010, including discounts, should be set at approx RUB 5700 per ton (FCA), exclusive of VAT and packaging costs.
The recent change in Silvinit’s shareholder structure and the appointment of Uralkali’s ex-CEO to head it could be seen as a step towards a potential merger of Uralkali (LSE:URKA) and Silvinit (RTS:SILV) , reports Uralsib's Anna Kupriyanova. Consolidation would see the emergence of the world’s second-largest potash producer and the largest potash exporter (under Belarussian Potash Company). Moreover, strengthened negotiation power for export pricing coupled with greater synergies and the potential for cost improvements (primarily on Silvinit’s side) would have a positive impact on the financials and valuation of the consolidated entity relative to the sum- of-its-parts. Uralsib estimate the market capitalization of the consolidated entity would be 15% higher, if Silvinit’s discount to Uralkali is disregarded; and at least 21% higher, if export prices and cost improvement potential for Silvinit are considered.
The better liquidity of Uralkali shares make it a less risky and preferable entry into a potential consolidated entity for a wider range of investors. Moreover, the attractiveness of Uralkali stock has been enhanced with the recent elimination of penalties associated with the mine-flooding incident back in 2006. At the same time, Silvinit’s 25% discount to Uralkali on a 2010E EV/EBITDA suggests a potentially higher return on Silvinit, as the valuation gap between the two shall narrow. The latter, however, largely depends on conversion terms and the mechanism for consolidation, which remains uncertain as of yet, and may favor one asset over another. Silvinit also hold risks, associated with its potential conversion for consolidation (if at all), although the final benefits for minorities may compensate for the issue of timing.
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