K+S may resort to hybrid bonds to fund Canada expansion


FRANKFURT, Oct 9 (Reuters) - German potash fertilisersupplier K+S is looking into hybrid bonds to financeits C$4.1 billion ($3.97 billion)expansion project in Canadaafter uncertainty over potash prices upset its previous fundingplans.

K+S has remained committed to its planned investment in thenew Canadian mine, Legacy, even after the breakup of an exportcartel of two larger rivals in July led to expectations of aslump in prices for the fertiliser mineral.

"Apart from standard fixed-income bonds, hybrid bonds arealso a possibility," a spokesman said on Wednesday, adding thatno decision had been made.

He reiterated previous statements that the main focus offinancing the project was debt, on top of existing cash held andfuture cash flows.

In a note to investors issued on Tuesday, Bernstein Researchanalyst Jeremy Redenius cited K+S finance chief Burkhard Lohr assaying that the miner may consider a hybrid bond worth up to$1.4 billion, secured against its future cash flows.

The K+S spokesman declined to confirm that amount, orspecify what kind of bond it was considering.

Hybrid bond is an umbrella term for a range of debtinstruments with features of equity financing, typically aconvertible bond, which pays a lower coupon than a standard bondin exchange for the potential to benefit from a rise in theshare price. It may include an option for the issuer to changethe terms depending on the company's financial situation.

Bernstein also cited CFO Lohr as saying he would expectpotash prices to be around $400 per tonne in three years, anoutlook that the company spokesman declined to confirm onWednesday.

K+S's potash prices tend to follow the bulk purchasingagreements hammered out between the world's biggest users, Chinaand India, and the top producers in Canada, Russia and Belarus.

The German producer tends to charge a mark-up on thoseprices because it sells fertilisers in smaller lots and many ofits products include additional minerals such as magnesiumcompounds.

Russia's Uralkali, the world's largest potashproducer, in July sent shockwaves through the industry by sayingglobal potash prices would likely fall to below $300 per tonnein the second half - from $400 at that time - because of itsdecision to leave its export alliance with Belaruskali.

Uralkali has since changed its stance and said it expectsprices to stay above $300, citing robust global demand. Thismonth it predicted global potash prices would rebound as soon assupply contracts for top global consumer China are set in early2014.

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