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By John Helmer in Moscow

When two of Russia’s most reclusive oligarchs are publicly reported to be in a big shareholding transaction, rumour of which suddenly drives up the share price of the asset by 25%, the least that can suspected is that someone is manipulating the market for personal gain. So, when Suleiman Kerimov is reported to be in talks to buy all, or much of Dmitry Rybolovlev’s control stake in potash producer Uralkali, it is reasonable to suppose at least one of them is aiming to make a killing – to use a figure of speech.

The current market capitalization of Uralkali is $8 billion. The second largest Russian producer of potash, with a 10% share of the global potash trade, is listed on the London and Moscow stock exchanges. Rybolovlev’s stake is 66%, worth about $5.3 billion. Moscow media reports claim Rybolovlev thinks his company is worth $10 billion, and his stake, $6.6 billion.

Tying part or all of that fortune down temporarily are divorce proceedings with Rybolovlev’s wife Yelena in a Geneva court, which has issued orders barring sale of assets until the divorce settlement is either agreed between the parties, or decided by the court. When Uralkali issued its initial public offering on the London Stock Exchange, the size of Madame Rybolovleva’s claims on Madura, the Cyprus-registered holding through which Rybovlovlev holds Uralkali, went unmentioned.

If Rybolovlev is selling up, then between $5 billion and $7 billion would be needed to pay him out. Kerimov does not appear to have that kind of money, according to sources in Switzerland, where some of his asset holdings are managed.

If Kerimov were to try borrowing for the purchase, his asset portfolio comprises primarily a shareholding stake in Polyus Gold, the leading Russian goldminer, of about 37%. At today’s market value of Polyus of $9.3 billion, Kerimov’s shares are worth about $3.4 billion. What they would be worth to a bank as security for a loan – supposing that the shares aren’t already pledged to cover Kerimov’s purchase of them from Vladimir Potanin a year ago — is almost certainly less, much less. One reason is that Kerimov proved unable to unload just 5% of his Polyus Gold shares on the market last November.

But Kerimov, whose rare public appearances are connected, not with his business, nor with his membership of the Russian senate, but with his motor-car accidents, is most likely to be acting for others. The pattern of his rise to oligarch status has been that of an asset accumulator, financed by Russian state banks, which agree to hold security for their loans over assets whose beneficial ownership is held by committees. These comprise Russians of such high repute, they are shy of having their names known. So they trust Kerimov to act as their trustee and front-man.

On May 27, Uralkali announced officially that Rybolovlev’s holding Madura is “in preliminary discussions with a number of interested third parties regarding a possible sale of shares in the company. As far as the company is aware, the discussions are at an early stage and there is no certainty about the terms and structure of such a transaction or that an agreement will be reached.” This confirmed the earlier Moscow speculation that Rybolovlev was selling. The list of candidate buyers were reported as including Kerimov, Mikhail Prokhorov, Vladimir Potanin and others.

Prokhorov’s holding has been cited by a Moscow newspaper as saying there have been discussions with Rybolovlev, but Prohkorov isn’t interested to continue. A source close to Potanin said there had been an indirect approach in early 2008, when Potanin was looking to combine his Norilsk Nickel stake with allies strong enough to ward off a hostile takeover by Oleg Deripaska. Since then, the source claims, Potanin and Rybolovlev haven’t met, and Potanin has no interest in Rybolovlev’s future — or Uralkali’s for that matter.

On Monday (May 31), Rybolovlev appeared at a fertilizer convention in Paris. He was accompanied by Oleg Petrov, a protégé who runs the Minsk-based potash marketing agency, BPC, and Denis Morozov, the new chief executive at Uralkali in Moscow. According to the report of what was said by Troika Dialog, “Rybolovlev was understandably tight-lipped with regard to negotiations to sell a controlling stake in the company, though he confirmed that talks with several parties are ongoing, the purchase could be conducted by a pool of investors, he plans to retain some stake in Uralkali along with his 25% stake in Silvinit commons, only
domestic players could acquire a stake in Uralkali, and a further merger of Uralkali
and Silvinit remains feasible.”

For “pool of investors”, read Kerimov and his associates or partners. Whether Rybolovlev meant that the exclusion of non-Russians from Uralkali would apply to Kerimov’s backers, Rybolovlev isn’t saying.

He did say, according to those who were present in Paris, that he might take three more months to finalize the sale; the pool of buyers may end up individually with less than 30% each, thereby avoiding a mandatory buyout offer to the minority shareholders in Uralkali; that Rybolovlev himself might hang on to a minority stake; and that he may also toss his 25% stake in Silvinit into the sale pot.

One of Rybolovlev’s motives for spilling these beans was to deny the speculation that he is a forced seller, either because his wife has him by the balls; or because the Russian government is turning the thumbscrews on him. If the Uralkali share price is to be pushed upwards over the next three months, it’s necessary that the market believe this. And if the only reason Rybolovlev has broken his customary omerta is to boost the price of his shares, in order to allow him to pay his divorce settlement with as few shares as possible, then for the time being stock buyers and stock brokers believe the deal will be concluded at a premium — not at a discount to last month’s price.

Noone else in the Russian potash business, who has had an interest in acquiring domestic potash sources, admits to being in talks with Rybolovlev, or in the “pool of investors”.

Since October 2008, for example, Rybolovlev has been in a form of cold war with the deputy prime minister in charge of resources, Igor Sechin. Sources in Belarus report that Rybolovlev appeared in Minsk in 2009 to discuss what the Belarus government and President Alexander Lukashenko might be willing to do to secure him, in case Sechin launched Russian prosecutors with an arrest warrant. During that time, it was thought that Sechin was planning to impose such heavy penalties on Uralkali for the loss of its Mine-1 in an underground subsidence in 2006, Rybolovlev might be forced to cede his shares to Sechin’s candidate. For a time in early 2009, that appeared to be Vyacheslav Kantor, owner of Acron, which mixes and sells fertilizers in both Russia and China. But the global collapse of potash and other fertilizer prices in autumn 2008, and the doldrums of 2009, appear to have put the kybosh on this scheme – if indeed Sechin and Kantor had been plotting together. Yelena Kochubei, a spokesman for Acron, told Minesite this week that she doesn’t have information on whether Acron is planning to buy shares of Uralkali.

It would be polite to say that Silvinit’s owners have been commercial rivals and personal antagonists of Rybolovlev for years. So they are being polite when replying to the question of whether Silvinit is a bidder for a stake in Uralkali. “We know nothing about the talks on merger with Uralkali. No steps have been taken in this regard yet,” a Silvinit spokesman told Minesite. “It is Dmitry Rybolovlev’s personal opinion [that the companies can merge], nothing else. Rybolovlev may be negotiating with potential investors, but we as a company are not involved in that.”

So the mystery of the sale of one of Russia’s great resource companies comes down to an alias behind a screen. And if that is Kerimov, it is certain there must be others behind the screen with him to finance the deal.

Sources who claim to track Kerimov, his aeroplane, his boat, and his palatial accommodations on land suggest that because he has recently been showing interest in conducting his business from a new base in Singapore, what may be happening now is that Kerimov is trying to round up a consortium of Chinese institutions to fund the Uralkali buyout.

For China, the world’s largest consumer and importer of potash, the advantage of owning a sizeable stake in the import source is obvious. It is also plain that in terms of asset price, the Belarus state producer Belaruskali might be the most attractive to Beijing. No surprise then that in early May, President Lukashenko announced he is preparing a stock conversion of Belaruskali to make privatization possible, and the sale of a strategic stake to a foreign buyer, if the price is right. “Last year,” Lukashenko said, “all our enterprises were reincorporated as joint stock companies. We do not rule out that an investor could come to any enterprise, up to and including the pipeline system. Even the military-industrial complex is no exception. For instance, 50% of the Beltransgas shares have been acquired by Gazprom. We are ready to negotiate with any investors, be they from the West or from the East. The main thing is the well being of employees of those privatized companies. And after being privatized, the company should not operate worse.” As for the prospects of selling Belaruskali, Lukashenko said: “I do not rule it out. If the share price is good, we will what kind of a stake to sell. But Belarus will retain a controlling stake for now.”

Asked if Chinese buyers were acceptable for Belaruskali, Lukashenko added: “Money does not smell. The euro is not worse than the yuan and the yuan is not worse than the euro. The Russian ruble also suits us and the same is with the dollar, that’s why we are ready for talks with any investors, be it western or eastern ones.” These remarks have encouraged speculation that a Chinese bid may be under way.

There are also concrete signs that this is so. In the second half of 2009, when BPC was negotiating price and volumes of potash for sale to China, it was reported that if the Chinese agreed to premium pricing for the commodity, they might be given the right to buy an equity stake in Belaruskali. In February of this year, Belarus deputy prime minister Vladimir Semashko. said the government in Minsk was looking for a foreign strategic investor in the potash industry, adding: “it is certainly not Canada, which is on the world market a competitor for Belarusian producers.” The next month, a Chinese government delegation was in Minsk. Sinofert and China Blue Chemical Ltd. were also along for the ride. In April, an anonymous source was reported as telling the Belarus media that “the Chinese holding company Sinofert and China Blue Chemical received from the Government of the PRC the authority to negotiate with the Belarusian side on purchasing shares of Belaruskali”.

Is the Rybolovlev disclosure of the sale of Uralkali shares an attempt to beat Lukashenko and the Belarusians to a deal? Is the screen behind which Kerimov may be concealing himself in the Rybolovlev negotiations, a Chinese one?

In Moscow, the Kerimov candidacy as buyer for Uralkali has not been thought of as a front for a Chinese investment move into potash, at least not yet. But that is because Kerimov and his business interests are generally thought of as centered in Switzerland, Belgium, and London: http://johnhelmer.net/?p=2240

Less well known, and much more recent, are reports that Kerimov is establishing himself in Singapore, and negotiating with local institutions to fund Russian asset acquisitions. Because Kerimov never speaks, the reports can’t be corroborated. If he’s there, Kerimov is hardly alone in Singapore. There are an estimated 6,000 Russians with Singapore resident permits. But the short-term Russian trader and tourist flows have dwindled since the 1990s; an estimated 56,000 short-term Russian visitors were reported in 2008. Aeroflot no longer flies to Singapore.

Singapore’s trade with Russia is relatively modest. In 2009 turnover of trade going both ways was just over $2 billion, according to Russian Customs data. This represented growth on 2008 of 22%. In the first quarter of this year, the trade volume appears to be dropping by 12% on the same period of 2009 to $545 million. The trade flow is dominated by Russian exports of diesel fuel, crude oil, copper and aluminium products. Singapore’s exports to Russia are much less, mostly mobile telephones and computer parts. The Singapore version of the trade data, counting services and tourism, shows much greater turnover – S$3.8 billion (US$2.6 billion) in 2008.

The Singapore Stock Exchange (SGX) currently lists no Russian companies, but it has been promoting itself as a platform, particularly for initial public offerings by Russian shipping, marine services, oil and gas services, and IT companies, and as a secondary share trading market. In March, the SBX sent a delegation to Moscow to pitch for listings; a one-day seminar on March 10 reportedly drew a hundred mid-size Russian companies to listen to Simon Lim, the SBX listings director, and Ong Chong-Jin, the exchange’s marketing head. But compared to the Russian interest in the Hong Kong Stock Exchange, there have been no takers as yet. The listed Russian shipping, port and stevedore companies still prefer London.

Much more interesting for Russians is Singapore’s private banking sector for the management of individual wealth. It is thus likely that Russian bankers will seek to capitalize by hanging out their shingles on Raffles Square. MFK Bank, for example, has announced it is preparing partnerships with counterpart western private bankers, like Fleming Family and Partners, for asset management of Russian individuals. Last December, MFK also announced that Prokhorov, who has owned 100% of the shares of MFK, was planning to sell blocs of his stock to Kerimov, Victor Vekselberg and Alexander Abramov.

Temasek, the Singapore sovereign wealth fund with about US$120 billion in assets, has been a target of fund-raising interest by Russian companies during the 2007-2008 boom; but there is no disclosure on Temasek’s website of any sizeable Russian investments. This is notwithstanding the reported commitment of Temasek to the Moscow real estate group PIK, which listed its shares in London in 2007, and collapsed a year later.

Singapore’s last ambassador to Moscow, Michael Tay, served from 2003 and returned home in 2008; he is currently serving as executive director of the Singapore-Russia Business Council; executive director of the secretariat of the Asia-Pacific Economic Cooperation (APEC); and adjunct professor at the Lee Kuan Yew School of Public Policy. He retains his official standing at the Singapore Ministry of Foreign Affairs.

Reportedly associated with Kerimov during his time in Moscow, and since then, Tay was unable to respond to a request for confirmation of their association, or of Kerimov’s current business interests in Singapore.

The current Singapore ambassador to Russia, Simon Tensing de Cruz, was unable to respond to questions about the size of the Russian resident community in Singapore, whether Kerimov is one of them, and what Singapore investment houses may be working with Kerimov.

Kerimov’s spokesman at the Federation Council and his Moscow business holding, Nafta Moskva, were asked to clarify whether Kerimov holds a residency permit for Singapore; visits there regularly; and has current business interests there. They did not reply.

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