Russia's Uralkali to delist from LSE, posts revenue decline in Q3

By bne IntelliNews November 23, 2015

One of the world's largest potash producers Uralkali will delist from London Stock Exchange (LSE) on December 22, the company said on November 23, after a series of buybacks throughout 2015 that fuelled speculations that it was about to go private.

Uralkali will launch one more buyback programme on November 24, targeting up to 6.5% of its share capital out of remaining free float of 13.5%, the company added in a press release. Low liquidity of GDRs to remain on LSE is cited as the reason behind delisting.

BCS Equity issued a flash comment in November 23, adding Uralkali to its crop of picks and supporting its Buy recommendation ahead of the planned buyback.

Meanwhile, Uralkali is operating in challenging conditions, the company said. It reported that in Q3 its revenues declined by 9% y/y to $819mn and sales went down by 6% y/y to 2.9mn tonnes of potash (out of 3mn tonnes produced).

In nine months of 2015, overall revenues declined by 9% to $2.4bn and sales by 8% y/y to 8.5mn tonnes (out of 8.7mn tonnes produced), which was attributed to declining demand on all key markets.

The company said it does not exclude revising its sales and output outlook for 2015 downwards.

Uralkali finished its last buyback in October, acquiring a total of 645.3mn shares, or 21.98% of its outstanding stock, including 488.5mn commons (16.6% of issued shares) and 31.4mn GDRs (5.3%), paying a total $2.06bn, or 92% of the initially planned $2.25bn.

This included the entire 12.5% stake of Chengdong Investment Corporation (a total of 367mn shares), with the rest sold by minorities. The stock's free float is reduced from 23.4% to 13.9%.

Following the completion of the latest buyback, the freefloat percentage and capitalisation of Uralkali fell below the minimum thresholds for the MSCI Russia Standard Index, the index provider said, announcing the removal of the stock from the index.

On October 12, Moody's Investors Service downgraded the corporate family rating and senior unsecured rating of Uralkali to 'Ba2' from 'Ba1', outlook Stable.

"The downgrades reflect the increased risks in Uralkali's corporate governance and financial policies," the agency commented, while adding that company's financial profile no longer complies with the 'Ba1' rating.

Following recent downgrades by Fitch and S&P, Moody's too had concluded that Uralkali's corporate governance risks have increased following the two share buybacks in June and September, both unanticipated, and that the company's financial policy has become more aggressive.

In addition, Uralkali's diversified shareholder structure has become highly concentrated, dominated by only two major unrated shareholders: Uralchem fertiliser major and ONEXIM Group investment group controlled by billionaire and ex-presidential candidate Mikhail Prokhorov.

Uralkali shareholder structure before and after second tender offer
  Before tender offer After tender offer
  % of % of % of % of
  issued outstanding issued outstanding
Onexim Group 20% 26% 20% 37%
UralChem 20% 26% 20% 37%
Chengdong Investment Corporation 13% 16% 0% 0%
Free float 23% 31% 14% 26%
Treasury shares 24% Ð 46% Ð
Source: Company, Sberbank CIB Investment Research    
Uralkali 1H15 results, $ mln
  1H14 2H14 1H15 H-o-H y-o-y 1H15E A/E 1H15C A/C
Gross revenue 1,726 1,833 1,562 -15% -9% 1,580 -1% 1,589 -2%
EBITDA 767 1,017 933 -8% 22% 945 -1% 914 2%
EBITDA margin 44% 55% 60% 5 pp 16 pp 60% 0 pp 58% 2 pp
Adjusted net income 374 -67 654 n.m. 75% 595 10% 535 22%
Adjusted net margin 22% -4% 42% n.m. 20 pp 38% -2 pp 34% 2 pp
C - Average adjusted consensus based on Interfax data          
Source: Company, Sberbank CIB Investment Research          
Uralkali 3Q15 production results
  3Q14 4Q14 1Q15 2Q15 3Q15 Q- o- Q y- o- y
Potash production, '000 tonnes 3,200 2,900 2,700 3,000 3,000 0% -6%
Capacity utilization* 98% 96% 98% 109% 109% 0 pp 11 pp
* Utilization rate based on 11 mln tonnes of operating capacity for 1Q- 3Q15, 13 mln tonnes for 2Q- 3Q14 and 12 mln tonnes for 4Q14
Source: Company, Sberbank CIB Investment Research

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