Israel Chemicals Ltd. on Dec. 16 announced a major strategic cooperation agreement with Yunnan Yuntianhua Group Co. Ltd., a Chinese government-owned company that is China’s second largest chemicals manufacturer with large scale phosphate mines and a manufacturer of fertilizers and downstream products derived from phosphates.
ICL will invest up to $500 million in its strategic alliance with Yunnan Yuntianhua which will include a) the creation of a new joint venture company in which ICL will have 50 percent ownership and which will operate an integrated, world-scale phosphate platform across the value chain and b) a strategic holding in Yunnan Yuntianhua, China’s leading producer of phosphate rock and fertilizers, as detailed below:
The joint venture will include the following assets:
• A world-scale phosphate rock mine, currently operated by Yunnan Yuntianhua, that produces approximately 2.5 million mt/y of phosphate annually, and which will become the jv’’s full backward integration as a competitive phosphate platform.
• An integrated, world-scale phosphate operation with annual capacity of approximately 1,850,000 mt of sulfuric acid, 700,000 mt of phosphoric acid, 850,000 mt of fertilizers, 60,000 mt of purified phosphoric acid, 120,000 mt of specialty fertilizers and 65,000 mt of specialty phosphates for the food and engineered materials markets.
ICL will nominate the joint venture’s CEO, COO and a VP sales & marketing, whereas Yunnan Yuntianhua will nominate the JV’s CFO and VP HR. ICL will lead the operations of the business and merge ICL’s existing businesses in China into this entity, which will be fully integrated into ICL’s global businesses. ICL said the jv will be transformed into a fully operating business unit, including product development, production and sales & marketing.
In order to strengthen the strategic partnership between ICL Yunnan Yuntianhua and to create additional value for their respective shareholders, $269 million of ICL’s investment will be used to acquire a strategic holding in Yunnan Yuntianhua, a subsidiary of Yuntianhua Group that is listed on the Shanghai Stock Exchange (600096: Shanghai). The newly-issued shares will represent 15 percent of Yunnan Yuntianhua’s equity following their issuance to ICL.
ICL said Yunnan Yuntianhua is one of China’s leading chemical companies with a strategic focus on the phosphate value chain and a strong advantage in mineral resources, providing high-quality products and services across the agriculture and engineered materials industries with approximately $9 billion in annual revenues. The issuance of the shares will make ICL Yunnan Yuntianhua’s largest private shareholder and will entitle ICL to nominate two members of Yunnan Yuntianhua’s board of directors and a vice president of Yunnan Yuntianhua, as well as a vice president for two of its subsidiaries. The shares will be purchased by ICL for RMB 8.24 per share, a 10 percent discount from Yunnan Yuntianhua’s average share price over the twenty trading days before November 25, 2014. The shares will be locked up for a period of three years, demonstrating ICL’s long-term commitment to a long-term alliance with Yunnan Yuntianhua. ICL intends to become an active, value creating shareholder of Yunnan Yuntianhua.
For ICL, the transaction will be cash EPS accretive for ICL from the first full year of operations with aggregate EV/EBITDA ratio of 7.4 based on second year projections.
The transaction is expected to close in Q1 2016, subject to closing conditions which include government approvals.
ICL said the transaction with Yunnan Yuntianhua represents the next significant execution step of ICL’s "Next Step Forward" strategy. It will increase ICL’s phosphate platform by more than 50 percent and expand its phosphate end-to-end business model acr