MOSCOW – Russia's Uralkali
Uralkali on Tuesday quit Belarusian Potash Company (BPC), a joint venture with Belarusian partner Belaruskali and one of the world's two big potash cartels, heralding a price war for the key crop nutrient and sending the shares of companies that produce it sliding.
Uralkali plans to compensate for the expected price fall by increasing sales to 14 million tonnes in 2015 from a forecast 10.5 million this year.
Moody's analyst Sergei Grishunin said in a research report that the plans to increase volume were "realistic" and should help maintain Uralkali's cash flow at the current level.
"However, we expect Uralkali's liquidity to come under pressure because it is already weak after recently using cash reserves for a 41 billion rouble (approximately $1.3 billion) share buyback," he wrote in the report.
Uralkali said in June it would buy back investor and politician Zelimkhan Mutsoev's 6.4 percent stake in the firm for around $1.3 billion, raising new borrowing to finance the deal.
"They weakened their credit profile just before this negative event (pulling out of the venture)," said Grishunin. "If they hadn't done the transaction with Mr Mutsoev, I would say that they were very strongly positioned because they have sufficient reserves, but now because they spent a lot of cash, they put themselves in a weaker position."
Grishunin wrote that Uralkali needs to raise additional debt by the end of 2013 to cover projected capital expenditure of $400 million, $180 million of dividends and $370 million of debt which matures in the third and fourth quarters.
He estimated its reported debt would rise to around $4.7 billion by the end of this year from $3.9 billion in 2012.
Grishunin said the company would receive less free cash flow if the potash price falls, contributing to a weakening of its financial profile.
Moody's rates Uralkali on the investment grade rating of Baa3. Uralkali declined to comment on the report.
(Reporting by Megan Davies; editing by Tom Pfeiffer)