Gazprom, Rosneft and EuroChem claim to buy Grodno Azot

Experts think the company is overpriced by half.

The blocking stake of Grodno Azot, a Belarusian big manufacturer of nitrogen fertilisers, was put up for sale. With a starting price of $414mn, the purchaser is expected to invest $1.6-1.8 billion and acquire control over the company for an additional sum of at least $440mn. The list of possible buyers is restricted by the requirement to deliver 2 billion cubic metres of gas a year. However, experts think the stake is overrated approximately by half, Kommersant writes.

The State Property Committee of Belarus is looking for an investor to buy a 25% stake plus one share in Grodno Azot. Bidders will be selected on June 29. The starting price of the package is $414mn. According to the committee, the price was set taking into account direct gas supplies from the gas pipeline Gazprom Transgaz Belarus. The new stakeholder can later buy more shares and acquire the controlling stake. The additional shares will be issued, and the investor will need to buy shares worth not less than $440mn “at the market price of January 1 of the year, in which the decision will be taken”. The money will be spent on Grodno Azot's upgrading.

The investor will be required to pay for the construction of a new nitrogen facility by 2019 with an ammonia unit able to produce 875,000 tonnes a year and a carbamide unit with a capacity of 1.2 million tonnes a year. Minsk estimates the cost of the upgrading and the new facility construction at $400mn and $1.2-1.4bn respectively. Another requirement is providing gas supplies for a period of at least 10 years (Grodna Azot now needs about 2bn cubic metres a year). The gas price should provide the profitable work of the company. The investor cannot dispose of shares until the obligations are not fulfilled. Belarus has the priority right to reacquire the package until 2025.

Eurochem, Gazprom (the current gas supplier) and Rosneft are named as main competitors. The oil company said in late 2013 that it was interested in gas supplies to the Belarusian company and planned to discuss it with Gazprom, but Rosneft CEO Igor Sechin said he didn't consider buying the stake. Representatives of Rosneft, Gazprom and Acron (Russia's biggest nitrogen fertiliser producer) declined to give comments on Friday. Vladimir Torin, Eurochem's representative, confirmed the company's interest in buying a stake in Grodno Azot, but noted the company needed to study the tender documents to take a decision.

Andrei Shenk from Alfa Capital thinks the price of Grodno Azot's package is overrated at least by half taking into account the risks of increasing the gas price and absence of opportunities of real managing: the new owner will only get the right to be present in the board of directors. The expert says gas supplies is open to question for Rosneft, so the company cannot be viewed as a strong competitor, and nitrogen fertilisers are a non-core business for Gazprom. According to him, the most probable buyer is Eurochem, which recently began to produce gas, but the purchase won't bring synergy to the company.