Sinofert Holdings

Sinofert buys 6.7b yuan stake in potash firm

PUBLISHED : Thursday, 18 October, 2007, 12:00am
UPDATED : Thursday, 18 October, 2007, 12:00am

Sinofert Holdings, the mainland's largest fertiliser importer and distributor, has agreed to buy its parent Sinochem Corp's 18.5 per cent stake in Shenzhen-listed potassium fertiliser producer Qinghai Salt Lake Potash for 6.73 billion yuan.

The deal, Sinofert's first asset injection since 2005, came after Qinghai Salt Lake Potash's share price gained more than five times in value since the start of last year, in line with gains in the Shenzhen Composite Index.

In a statement to the Shenzhen Stock Exchange yesterday, Qinghai Salt Lake said Sinofert would buy 141.9 million of its shares at 47.49 yuan per share, or a 22.6 per cent discount to Tuesday's close, and become its second-largest shareholder.

Despite the deep discount, Sinochem is expected to reap a massive profit from the sale as its investment in Qinghai Salt Lake was only 460 million yuan.

The acquisition is part of a bigger asset injection plan started in 2005, including a 40 per cent stake in urea and methanol producer Tianji Sinochem Gaoping Chemical Engineering and a 60 per cent interest in complex fertiliser maker Sinochem Shandong Fertiliser.

Qinghai Salt Lake is the mainland's largest maker of potash or potassium-based fertiliser. The company made 1.73 million tonnes of potash last year and had a 20 per cent share of the mainland market. It planned to raise output by 10 per cent this year.

The country is the world's second-largest potash consumer and relies on imports for 66 per cent of its potash consumption.

Qinghai Salt Lake's net profit grew 34.2 per cent in the first half of this year to 494.55 million yuan from a year earlier.

Sinofert said in an announcement yesterday it would finance the purchase through proceeds from earlier share placements, internal cash resources, equity and debt financing.

It also said it would not sell the stake until June 2010.

Sinofert had HK$145 million of cash and bank deposits at the end of June. It raised HK$2.36 billion by selling 400 million new shares in July.

BOC International analyst Ni Xiaoman expected the company to either seek a bank loan or issue shares to its parent to meet a shortfall of some HK$4 billion for the deal.

Sinofert might book 278 million yuan in investment gain from the deal, she said, compared with the brokerage's HK$1.51 billion profit estimate for the company.

Ms Ni also forecast Qinghai Salt Lake would post a net profit of 1.5 billion yuan next year.