China has acquired a 12.5% stake in No. 1 potash producer OAO Uralkali in an agreement allowing Beijing to secure stable supplies of the fertilizer, while inflicting pressure on worldwide markets and ultimately reducing the likelihood of a Russia-Belarus cartel revival; at 10% of global demand, China is the top potash consumer.
The investment by China's $575-billion China Investment Corp. (CIC), a sovereign wealth fund, is the most significant development since Uralkali quit the Belarusian Potash Co., its lucrative joint venture partnership in mid-Q3. After talks broke down with the president of Belarus and CEO Vladislav Baumgertner was arrested in Minsk, the $22 billion-per-year industry — along with Belarus exports, 7% of which are potash-reliant — has been in turmoil ever since.
In all, China consumed about 10 million tons of the soil nutrient in 2012, 70% of which came from abroad, while mainland growth has spurred a series of CIC commodity-related investment buyouts. Nonetheless, according to analysts, such outright ownership in any such Russian natural resources sector is rare; with Uralkali's market equity totaling $16.4 billion, CIC’s 12.5% stake is valued at $2 billion, said observers.
Others, meanwhile, believe Moscow wants to repair the alliance to prevent a potential collapse in global potash demand, which also represents 12% of Belarus' government revenue; CIC officials, who made the acquisition through their Chengdong Investment Corp. subsidiary, declined to comment, according to Reuters.
Under the deal, Uralkali representatives said CIC officials received the stake through a bond exchange swap with Wadge Holdings Ltd., purchased in Q4 2012; among its three shareholders is prominent Russian oligarch Suleiman Kerimov.
The Uralkali agreement could also strengthen China's negotiating position with other potash producers: The mainland already imports some 6 million tons of potash annually; thus China’s potash prices are deemed the global benchmark. But changes to Indian supplies, the world's second-largest potash consumer with its No. 2 population, on the other hand, are unlikely, experts said.