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Phosagro Mulls Merging Production Units With Parent to Cut Costs

28 January 2014

OAO Phosagro (PHOR), Europe’s largest phosphate-fertilizer maker, may consolidate its subsidiaries to cut costs and improve shareholder returns.
Phosagro is considering combining its OAO Apatit and three other units, Chief Executive Officer Andrey Guryev said in an interview in Moscow. The board will then consider merging the company with its parent, he said. The move would cut costs through streamlining accounts and reducing staff, said Guryev, who is scion of the family that controls the company. There is no numerical target for job cuts, he said.
Guryev’s family sold 9 percent of Phosagro last year, raising $467 million as it sought to gain access to the MSCI Russia index to attract more investors. Phosagro went on to buy out minority owners of Apatit and plans to do the same at unit OAO Phosagro-Cherepovets.
“Trimming the corporate structure is a logical measure to cut costs,” Konstantin Yuminov, a Raiffeisenbank analyst, said by phone from Moscow. “But should Phosagro decide in favor of merging its production assets with the parent company, it will need to be very cautious to do it in an investor friendly way.”
The company may borrow about $200 million from a bank for the Phosagro-Cherepovets buyout, Guryev said. That would be the only major debt increase after Phosagro this month agreed a $440.6 million loan from a group of banks to fund the construction of an ammonia complex in Cherepovets in Russia’s northwest, he said.
The complex will be Phosagro’s biggest investment until at least 2017 and will be able to produce 760,000 metric tons of the product annually, he said.
Potash ‘Nightmare’
Neither Guryev’s family nor his company intend to sell more shares, as he considers them undervalued, he said. Fertilizer-maker stocks plunged after a collapse in potash prices when OAO Uralkali ended a trading venture with Belarus that had buoyed global prices for the commodity.
Even though Phosagro doesn’t produce potash, the rout affected all fertilizer prices and knocked 24 percent off the company’s value last year. It also put entry into the MSCI Russia index out of reach. The phosphate market has since stabilized, with company shares up 17 percent this year.
Potash projects are too capital-intensive for a CEO more interested in paying dividends, Guryev said. He won’t be diversifying into the commodity.
“That would come to me only in a nightmare,” he said.