MSCI Russia drops Uralkali

Moscow — Uralkali said Oct. 19 that the Morgan Stanley Capital International (MSCI) index provider had made a decision to exclude the company’s shares from MSCI Global Standard Indexes Russia, effective from Oct. 21. The decision comes after the proportion of Uralkali’s outstanding shares available for purchase by international investors fell below the required threshold after a stock buyback by the company, which was completed Sept. 25. The company repurchased 488,481,282 common shares and 31,363,901 GDRs (representing 156,819,505 common shares) under the tender offer, which constitutes an aggregate 21.93 percent of Uralkali’s issued common shares. The purchased shares included a 12.5 percent stake held by China’s Chengdong Investment Corp. The $2.1-billion buyback reduced the “free float” to approximately 13.9 percent of Uralkali’s share capital, the potash producer said Oct. 16. This latest stock repurchase follows another buyback of around $1 billion in June. It is understood that passively-managed funds that track the MSCI indexes are forced to sell Uralkali shares once the company is dropped from the index. Bloomberg Business quoted Russia’s VTB Capital as saying the exclusion from the MSCI index could drive as much as $30-$35 million of investment away from the stock. Uralkali in August warned that the reduction in the free float may also lead to a de-listing of its shares from the London and Moscow stock exchanges. Amid talk that the potash producer’s share buybacks could lead to it going private, there had been speculation in recent months that Uralchem, which already owns a 19.99 percent stake in Uralkali, may seek a merger (GM Sept. 28, p.14; GM July 20, p.15). Uralchem, until last week, never publicly commented on talk of a merger. But analysts had said for Uralkali and its shareholder value such a merger would hardly be profitable given the low operating synergies of such a tie-up and Uralchem’s large outstanding debt, understood to be some $4 billion. Uralchem CEO Dmitry Konyaev, in an interview with Bloomberg last week, echoed these sentiments, saying a merger with Uralkali makes "no sense" (GM Oct. 19, p.16).