Gazprom Resows the Fertilizer Market // The monopoly may unite with Evrokhim
June 20, 2007
-------------------------------------------------------------- One thing is for sure, this Russian giant is not moving in here to ensure the world has a cheap supply of urea. The fertilizer story is about to hot up and the likely inflation will surprise all. YC --------------------------------------------------------------
Gazprom yesterday confirmed for the first time that it is interested in mineral-chemical companies Togliattiazot and Berezniki Azot (Berezniki Nitrogen in Perm Region). It had been assumed that the monopoly would buy those assets as part of the formation of a large mineral fertilizer holding based on its subsidiary OAO SIBUR Holding. However, market insiders say that Evrokhim may be the base for the holding. Gazprom has been negotiating with the owners of that company over the pooling of their assets. Both potential partners want to buy Togliattiazot to maximize their contribution to the joint venture. Mezhregiongaz general director Kirill Seleznev announced that Gazprom was interested in acquiring Togliattiazot yesterday at a press conference. “As far as I know,” he said, “there is interest in Togliattiazot. Possibly there is interest in Berezniki and other enterprises as well.” Thus, Seleznev officially confirmed Kommersant's information of February 12, in spite of earlier firm denials. Seleznev mentioned that OAO SIBUR Mineral Fertilizers had been set up as part of the Gazprom group and was consolidating assets in that field. Seleznev is the chairman of the board of SIBUR-MF. A Gazprom source confirmed that the monopoly's strategy for its mineral fertilizer holding included the acquisition of “many enterprises.” The source explained the unwillingness to confirm that negotiations were underway by saying that “We have no interest in raising their price before the deal.”
Two sources, an executive in one of the chemical companies and an entrepreneur familiar with Gazprom's plans, told Kommersant that there was interest in Togliattiazot and Berezniki Azot and that Gazprom was preparing the market for much bigger news. That is the possible foundation of a joint venture with Andrey Melnichenko's Evrokhim similar to its joint venture with SUEK, in which Melnichenko, along with Sergey Popov, is also a co-owner. “The side with the most assets will enter the joint project more cheaply, so Gazprom and Mr. Melnichenko are both negotiating with Togliattiazot,” the source in the chemical industry said. Negotiations are being held not only with Vladimir Makhlai, who is the main owner of Togliattiazot and who has a warrant out for his arrest in Russia and lives in London, but with minority shareholders as well. ZAO Kuibyshevazot and Renova Orgsyntes are among the minority holders.
Gazprom declined to comment on negotiations with Melnichenko. Evrokhim representatives and Melnichenko's advisor Vladimir Melnikov all stated that they were unaware of such negotiations. Makhlai's whereabouts in London are unknown and they claim not to know about plans to sell the company at Togliattiazot as well. Makhlai has not been in Russia for about two years.
Analysts note that a joint venture with Evrokhim would permit Gazprom to take a significant place on the mineral fertilizer market right away. “Gazprom has long wanted to enter the nitrogen chemicals market, but it can only buy up shares in individual enterprises though its subsidiary SIBUR,” Troika Dialog analyst Mikhail Stiskin commented. “But Evrokhim is a major company with good management.” Stiskin also suggested that SIBUR-MF would be a temporary structure and not the center for the consolidation of assets. Renaissance Capital analyst Marina Alexeenkova called the sale of Togliattiazot “timely” and the creation of a joint venture by Gazprom and Evrokhim “logical.” “Gas is becoming more expensive fast,” Alexeenkova noted. “Any nitrogen fertilizer producer would try to create an alliance with the gas company.” Antanta Capital analyst Georgy Ivanin called the creation of a joint enterprise “very likely,” since it would be hard to sell a giant like Evrokhim. “Judging from recent deals, the owners of Evrokhim and SUEK have decided to get out of Russian completely, and so the foundation of a joint venture analogical to SUEK is quite logical,” Ivanin said.
So far, Gazprom's potential contribution to the joint venture looks modest. Stiskin estimated SIBUR's current assets in the field at $200-220 million. Togliattiazot could add another $1.5 billion to that amount, experts think, although Ivanin estimated its worth at only $830 million. Berezniki Azot would provide a boost of just under $400 million. That is still cheaper than Evrokhim, which Stiskin estimated to be worth $3 billion and Ivanin $3-3.5 billion.
