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Chinese sovereign wealth fund to sell $1.2bn Uralkali stake

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China's sovereign wealth fund is to sell its stake in the Uralkali, as the Russian potash giant ramps up its share buyback programme.

Chengdong Investment Corp, or CIC, has offered up for sale its 12.5% stake in the miner, priced at nearly $1.2bn according to the terms of Uralkali's share buyback.

The move bring Uralkali one step closer to what analysts believe may be its ultimate aim of a merger with Russian fertilizer group Uralchem.

Uralkali's remaining shareholders will be invited for an extraordinary general meeting in November, the aims of which have not yet been specified.

Buyback scheme

Uralkali last month announced a $1.3bn buyback, targeting 14% of shares.

This target has now been increased to 24% of the shares, with up to $2.26bn made available. .

Including the shares owned by Chengdong Investment Corp, more than 20% of the company's shares have already been offered for buyback, triggering an increase in the programme.

This week Uralkali obtained financing of $800m via a share repurchase agreement with VTB Capital, in order to help fund the purchase.

Shares in the company, which was previously expected to achieve its buyback without increasing it debt, fell on the news.

Uralkali is paying $3.20 a share or $16 a global depositary receipt, well above the current traded value of shares.

'Not a priority'

The scale of the buyback may result in Uralkali's removal from stock exchanges in London and Moscow, as the size the free float, the number of shares available to public investors, falls below permissible levels.

Uralkali said in August that its London listing was not a "strategic priority".

The buyback of Chinese-held shares will not affect the group's London listing, as it will not change the number of free-floating shares.

But increasing the size of the tender will increase the volume of shares that may be pulled off the stock exchange, and into the hands of Uralkali, and will increase the possibility of the company's delisting.

Merger possibility

The delisting of Uralkali would help pave the way for a merger with Uralchem, which owns 20% of its shares.

Uralchem has already stated that it is not interested in giving up its stake in the miner.

Uralkali has announced that it hold an extraordinary general meeting on November 17, with all shareholders registered before October 15 eligible to vote.

The meeting will cover "a number of issues including the approval of a new edition of Uralkali's charter," the miner said.

Cartel breakup

Since Chengdong Investment Corp took out its stake in Uralkali in 2013, by exercising their right to convert bond holdings into equity, the market vale of the comapny has fallen from nearly $22bn to less than $9bn.

Last year saw the break-up of Uralkali's regional cartel with the state-owned Belarussian venture Belaruskali.

The move threatened supply discipline, at a time of weak agricultural commodity prices, leaving an oversupplied market and low potash prices.

Uralkali has also been hit by flooding at one of its major potash mines, threatening 18% of its total capacity.

Uralkali shares were trading up 2.5% in Moscow at 186 roubles a share, while global depository receipts in London were 2.1% higher at $14.27.

By William Clarke

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