The main owners of Russia's Uralkali have sold bonds exchangeable into shares worth about $3-billion (U.S.) in a deal that could give a Chinese sovereign wealth fund a stake in the world's largest potash miner by output.
Uralkali said on Friday that the bonds had been sold to Chengdong Investment Corp., a subsidiary of China's CIC, and to VTB Capital, a subsidiary of the country's No. 2 bank VTB.
The bonds are due in 2014 and exchangeable into a 14.5-per-cent stake in Uralkali worth more than $3-billion at current prices. China's CIC could exchange its bonds into a 12.5-per-cent stake and VTB to a stake of 2 per cent.
The bonds were sold by four core Uralkali shareholders, led by tycoon Suleiman Kerimov, who between them own 45.3 per cent of the group.
Sources familiar with the deal said it showed that Russia's natural resources sector was open to strategic investment from its fast-growing Asian neighbour, a major buyer of the mineral fertilizer.
"Russia sits on extremely interesting opportunities in resources," one said, adding that such a deal had only become possible thanks to a significant improvement in bilateral ties in recent years between Moscow and Beijing.
The Uralkali transaction is the second involving CIC and VTB Capital in Russia this year, after the pair in May bought 7.5 per cent in Polyus Gold, Russia's largest gold producer, for $635-million.
VTB Capital advised Uralkali, a source said. The bank tops the league table for advising on deals with Russian involvement this year, according to Thomson Reuters data, advising on $63-billion worth of deals.
Uralkali, which has seen its market value gain 11 per cent in the past six months to $22-billion, did not specify the value or terms of the exchangeable bond transaction.
Mr. Kerimov led a concert party of investors that took control of Uralkali in 2010 and later merged it with fellow Russian potash producer Silvinit, creating a company with the scale to rival Canada's Potash Corp.
Mr. Kerimov was the largest Uralkali shareholder with an 18.09-per-cent stake as of Aug. 13, according to Uralkali's website.
Filaret Galchev owned 10.85 per cent, Zelimkhan Mutsoev 8.37 per cent and Anatoly Skurov 8.01 per cent. A fifth core shareholder, Alexander Nesis, owns a stake of 9.94 per cent but did not participate in the bond deal.
Two special purpose vehicles issued the bonds. Wadge Holdings Ltd, which owns 12.5 per cent of Uralkali, sold them to CIC. Wadge is owned by Mr. Kerimov, Mr. Galtchev, Mr. Mutsoev and Mr. Skurov.
A second entity, Fenguard Ltd., owns 2 per cent of Uralkali sold bonds to VTB Capital, in which CIC is also a minority investor. Fenguard is beneficially owned by Mr. Skurov.
Another source close to the deal said the prospective entry of a long-term equity investor would minimize the risk that a large sale of stock could depress Uralkali's share price.