Troika Dialog -

Industry consultancy FMB reported on May 4 that negotiations with Indian investors over the sale of a stake in Belaruskali have reportedly resumed and that IFFCO, one of the top local fertilizer manufacturers, is currently conducting due diligence of the assets. At the same time, Indian Potash, the country's largest potash importer, has stated that it is considering options for ensuring long-term potash supplies from Belarus to India.

Belaruskali produces roughly 9m tonnes of potash, or 15% of the global market, marketing all of its product together with Uralkali through Belarusian Potash Company (BPC). India, alongside China, is one of the largest potash importers, buying roughly 5-6m tonnes of potash annually, which fully covers the country's requirements.

The Indian investors allegedly bid for Belaruskali back in August 2011, when the process of selling the company livened up, also attracting Chinese buyers. The Indians at that time reportedly offered $6-7 bn for a 25% stake in Belaruskali, valuing the company at $24-28 bln, or roughly in line with the $30 bln target announced by Belarusian President Alexander Lukashenko.

On our numbers, such an aggressive offer implied a 55-60% premium to the fair price of around $15-18 bn (at $2.4 bn in EBITDA for 2011). However, the local government apparently recognized that the sale of a 25% stake - even at a large premium to a key customer - could reduce the value of the remaining stake and opted out, having attracted financing from various Russian sources to fill in the budgetary gaps.

Overall, should the stake in Belaruskali again be put up for sale, it would likely attract a number of contenders representing potash customers (Chinese and Indian) seeking to secure potash supplies, as well as producers (Uralkali first and foremost) attempting to preserve the oligopoly structure. In this case, we fear that Uralkali may have to bid up to acquire the stake and may ultimately overpay. On the other hand, should potash customers purchase the stake, BPC's producer discipline and functioning could be compromised.