ICL investing $350m in Chinese phosphate JV

Stefan Borgas
Stefan Borgas

Israel Chemicals has paid $180 million for its share in the venture with Yunnan, and the partners will invest another $340 million in equal shares.

Israel Chemicals (TASE: ICL: NYSE: ICL) has announced that it has completed the formation of a joint venture company (YPH JV) with Chinese phosphate producer Yunnan Phosphate Chemicals Group Corporation Ltd. (YPC).

ICL says that the YPH JV, which includes a world-scale phosphate rock mine producing approximately 2.5 million tonnes of phosphate annually and a large-scale phosphate operation, is expected to be a leading player in China's phosphate sector, operating an integrated, world-scale phosphate platform across the value chain. It will include upstream mining, bulk fertilizers and downstream businesses in specialty fertilizers, as well as in specialty phosphates for the food and engineered materials markets.

ICL's announcement says, "The YPH JV represents a key milestone in ICL's "Next Step Forward" strategy by increasing ICL's phosphate platform by more than 50%, securing its long-term reserves and expanding its phosphate end-to-end business model focusing on Asia. The partnership is expected to transform ICL into the world's leading specialty phosphate player and to nearly double its global phosphate market share. The YPH JV is also expected to improve the cost competitiveness of ICL's phosphate operations by providing ICL with access to a low-cost phosphate rock operation with vast reserves, as well as with low-cost phosphoric acid. ICL also sees major potential for phosphates specialties in China, and through the YPH JV it will be well-positioned to capture this opportunity. The YPH JV further adds ammonia-based fertilizers to ICL's portfolio which will enable ICL to serve its customers with a broader suite of solutions."

The YPH JV partners expect to invest about $340 million, on a 50/50 basis over the next five years, building specialty plants and tripling their white phosphoric acid (WPA) capacity. The parties have also agreed to produce and sell WPA in China exclusively through the JV within five years following closing.

In August, 2015, the YPH JV partners established a phosphate R&D platform in Kunming (Yunnan province) which will focus on developing phosphate-based technologies and providing strong technical support for the YPH JV's phosphate business, as well as the parties' respective businesses. Nearly a dozen projects have been initiated since the R&D unit was launched.

The YPH JV will be controlled by ICL, and its results, including assets and liabilities, will be consolidated into ICL's financial reports. ICL will lead the operations of the business and will merge its existing businesses in China into the YPH JV which will be fully integrated into ICL's global businesses and corporate governance and will become a fully operating business unit of ICL.

Ta Shenghua, chairman of Yunnan Yuntianhua, said, "We are very pleased to finalize our strategic relationship with ICL, a global phosphates industry leader. We look forward now to fully integrating Yunnan Yuntianhua's large-scale raw material reserves and infrastructure with ICL's expertise and technologies to create a powerful phosphates player that will conduct activities along the entire value chain - from mining to manufacturing downstream products. Together, Yunnan Yuntianhua and ICL will work to transform the phosphates industry in China and other Asian markets, as well as contribute to Chinese society and industry."

ICL CEO Stefan Borgas said, "Our YPH JV with Yunnan Yuntianhua provides ICL with access to major phosphate reserves and a strong platform from which to build the leading specialty phosphate business in fast-growing Chinese and Asian markets. It also strongly expresses ICL's dedication to meeting the essential needs of China's growing population because the JV will provide specialty fertilizers to China's large agricultural market, specialty phosphate products to many engineered materials markets as well as food additives for Asia's fast growing processed food industry. We look forward to continuing our great relationship with Yunnan Yuntianhua to serve these and other burgeoning Asian markets and to improve the profitability of both parent companies."

The closing occurred following the parties' satisfaction of the closing conditions, including all necessary approvals and ICL's payment of approximately $180 million in consideration of its share of the YPH JV. ICL's 15% investment in YTH (which was also a closing condition) has been preliminarily approved by the PRC Ministry of Commerce and is pending final approval by the China Securities Regulatory Commission (CSRC).

Following the closing of the YPH JV agreement, All of ICL's existing Specialty Phosphates business in China prior to March 25, 2015, will be folded into, and managed by, the YPH JV after a transition period.

Published by Globes [online], Israel business news - www.globes-online.com - on October 13, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Stefan Borgas
Stefan Borgas
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